macroeconomics - exam 2 terms

tax base (chapter 6)

value of goods, services, wealth, or income subject to taxation

tax rate (chapter 6)

proportion of a tax base that must be paid as taxes

marginal tax rate (chapter 6)

change in tax payment divided by change in income

average tax rate (chapter 6)

total tax payment divided by total income

proportional system of taxation (chapter 6)

as income increases, the tax bill goes up by the same proportion/amount

progressive system of taxation (chapter 6)

as income increases, the tax bill increases at a higher percentage at each income range

regressive system of taxation (chapter 6)

as income increases, the tax bill goes down by a decreasing percentage of taxes paid at each income range

sales tax (chapter 6)

taxes assessed on the prices paid on a large set of goods and services

static tax analysis (chapter 6)

evaluation based on the assumption that changes in the tax rate leave the tax base UNCHANGED

dynamic tax analysis (chapter 6)

evaluation that recognizes that higher tax rates may shrink the tax base

budget deficit (chapter 14)

government spends more than it receives in a given period of time (flow variable)

public debt (chapter 14)

total value of all outstanding federal government securities (stock variable)

aggregate supply (chapter 10)

total of all planned production for the economy

long-run aggregate supply (LRAS) curve (chapter 10)

output of real goods and services in a world where:

- technology is constant

- price level has not changed

- labor productivity has not changed

- all resources are fully employed

aggregate demand (chapter 10)

total of all planned expenditures in the entire economy

aggregate demand (AD) curve (chapter 10)

planned purchase rates or all final goods and services in the economy at various price levels, all other things held constant (ceteris parabis)

real-balance/wealth effect (chapter 10)

a rise in the price level causes a decrease in the real value of a given amount of money balances, and so planned spending will decrease

interest rate effect (chapter 10)

higher price levels indirectly increase the interest rate, which causes a reduction in borrowing and spending

open economy effect (chapter 10)

higher price levels result in net export decrease

long-run equilibrium (chapter 10)

occurs at the intersection of aggregate demand (AD) and long-run aggregate supply (LRAS)

supply-side inflation (chapter 10)

rise in price level due to decline in LRAS

demand-side inflation (chapter 10)

aggregate demand increases for a given level of LRAS, the price level must increase

say's law (chapter 11)

supply creates its own demand; desired expenditures will equal actual expenditures

AD or AS shock (chapter 11)

unanticipated shocks that cause the AD or AS curve to shift inward or outward

demand-pull inflation (chapter 11)

caused by increases in aggregate demand not matched by increases in aggregate supply

cost-pull inflation (chapter 11)

caused by decreases in short-run aggregate supply (SRAS)

consumption function (chapter 12)

relationship between amount consumed and disposable income

autonomous consumption (chapter 12)

the part of consumption that is independent of the level of disposable income, changes shift the consumption function

marginal propensity to consume (MPC) (chapter 12)

ration of the change in real consumption to the change in real disposable income

marginal propensity to save (MPS) (chapter 12)

the fraction of an additional dollar of disposable income that households save rather than consume

investment function (chapter 12)

represented as an inverse relationship between the rate of interest and the quantity of planned investment

multiplier (chapter 12)

the number by which a change in autonomous spending, such as investment, consumption, or government spending, is multiplied to get the change in real GDP

multiplier equation (chapter 12)

multiplier = 1/(1-MPC) = 1/MPS

change in GDP equation (chapter 12)

change in GDP = (multiplier)(change in autonomous spending)

discretionary fiscal policy (chapter 13)

discretionary changing of government expenditures or taxes in order to achieve national economic goals

expansionary fiscal policy (chapter 13)

an increase in government spending will stimulate economic activity

recessionary gap (chapter 13)

when an economy's actual real GDP is lower than its potential GDP at full employment

inflationary gap (chapter 13)

when an economy's actual real GDP is greater than its potential GDP at full-employment

contractionary fiscal policy (chapter 13)

decrease in government spending/expenditures, AD shifts left