Ec 140- Chapters 19-22

Front 1

National product/national income

Back 1

value of total production of goods and services

Front 2

Nominal

Back 2

measured in current dollars; effected by prices in overall economy

Front 3

Real

Back 3

measured in constant dollars from a given base period; only effected by quantity

Front 4

Gross domestic product

Back 4

measure of national income

Front 5

Potential GDP

Back 5

output the economy would have produced if all resources were fully employed

Front 6

Output gap

Back 6

difference between potential output and actual output

Front 7

Recessionary gap

Back 7

actual GDP < potential GDP

Front 8

Inflationary gap

Back 8

actual GDP > potential GDP

Front 9

Cyclical unemployment

Back 9

actual GDP is not equal to potential GDP so output gaps are present

Front 10

Frictional unemployment

Back 10

normal turnover of labour (i.e. new graduates searching for jobs after graduation at the same time)

Front 11

Structural unemployment

Back 11

mismatch between jobs and workers

Front 12

Full employment/ natural employment

Back 12

actual GDP = potential GDP; unemployment is still present due to constant frictional and structural unemployment

Front 13

Productivity

Back 13

amount of output that the economy produces per unit of input

Front 14

Labour productivity

Back 14

amount of output produced per unit of labour employed or per hour worked

Front 15

Consumer price index (CPI)

Back 15

average prices for a typical basket of consumer goods and services of household goods

Front 16

Real interest rate formula

Back 16

nominal interest rate - rate of inflation

Front 17

Exchange rate

Back 17

number of units of domestic currency required to purchase one unit of foreign currency

Front 18

Depreciation (effecting exchange rate)

Back 18

a rise in exchange rate

Front 19

Appreciation (effecting exchange rate)

Back 19

a fall in exchange rate

Front 20

Double counting

Back 20

adding up market values of all outputs of all firms resulting in a total much greater than the value of the economy's actual output

Front 21

Intermediate goods

Back 21

all outputs that are used as inputs by other producers in a further stage of production

Front 22

Value added formula (2 answers)

Back 22

~ the correct measure of each firms' contribution to total output - the amount of market value that is produced by that firm

~ sales revenue - cost of intermediate goods purchased from other firms

~ wages paid to workers + profits paid to owners

Front 23

Investment expenditure

Back 23

expenditure on production of goods not for present consumption

Front 24

Net investment formula

Back 24

Gross investment - depreciation

Front 25

Transfer payments

Back 25

payments to individual or institution not made in exchange for a good or service (not included in government purchases)

Front 26

GDP from income side formula

Back 26

factor incomes + indirect taxes + depreciation

Front 27

Factor incomes

Back 27

~ wages and salaries

~ interest

~ business profits (dividends and retained earnings)

Front 28

Statistical discrepancy

Back 28

fudge factor to make sure that the independent measures of income and expenditure come to the same total

Front 29

GDP deflator

Back 29

(nominal GDP/real GDP) x 100

Front 30

Gross national product (GNP)

Back 30

includes income received by Canadian residents regardless of location

Front 31

Desired expenditure

Back 31

what people desire to spend out of resources that they actually have, given income constraint and prices

Front 32

Desired aggregate expenditure formula

Back 32

AE = C + I + G + (X - IM)

Front 33

Autonomous expenditure

Back 33

elements of expenditure that do not change systematically with national income

Front 34

Induced expenditure

Back 34

any component of expenditure that is systematically related to national income

Front 35

Disposable income

Back 35

the amount of income hosueholds receive after deducting what they pay in taxes

Front 36

Consumption function

Back 36

relationship between desired consumption expenditure and all variables that deterine it

Front 37

Average propensity to consume (APC) formula

Back 37

desired consumption/level of disposable income

Front 38

Marginal propensity to consume (MPC) formula

Back 38

change in desired consumption/change in disposable income

Front 39

Marginal propensity to spend (z) formula

Back 39

change in desired aggregate expenditure on domestic output/change in national income

Front 40

Marginal propensity to spend

Back 40

~amount of extra total expenditure induced when national income rises by $1

~slope of aggregate expenditure function

Front 41

45 degree line

Back 41

~where desired consumption equals disposable income

~slope = 1

Front 42

Saving function formula

Back 42

Disposable income - consumption

Front 43

Marginal propensity to save (MPS) formula

Back 43

change in desired saving/change in disposable income

Front 44

MPC + MPS =

Back 44

1

Front 45

Factors causing movements along consumption function

Back 45

~changes in disposable income

~MPC changes

Front 46

Factors causing shifts in consumption function

Back 46

~change in wealth

~change in interest rates

~change in households' expectations about future

Front 47

Durable goods

Back 47

deliver benefits for several years

Front 48

Non-durable goods

Back 48

goods that deliver to hosueholds for only short periods of time

Front 49

Desired investment expenditure categories

Back 49

~inventory accumulation

~residential construction

~new plant and equipment

Front 50

Factors affecting desired investment expenditure

Back 50

~real interest rate

~changes in levels of sales

~business confidence

Front 51

Demand determined

Back 51

~firms are able and willing to produce any amount of output that is demanded of them

~change in production level does not cause change in price levels

Front 52

AE > Y

Back 52

excess demand: induces firms to increase production

Front 53

AE < Y

Back 53

excess supply: induces firms to reduce production

Front 54

The multiplier formula

Back 54

~change in equilibrium national income/change in autonomous expenditure

~1/(1-z)

Front 55

Net tax revenues (T) formulas

Back 55

~total tax revenue - transfer payments

~(net tax rate) x (national income)

Front 56

Net tax rate (t)

Back 56

the increase in net tax revenue generated when national income rises by $1

Front 57

T - G = 0

Back 57

budget balance

Front 58

T - G > 0

Back 58

budget surplus: government uses excess revenue to buy back outstanding government debt

Front 59

T - G < 0

Back 59

budget deficit: government borrows excess of spending over revenues by issuing additional government debt

Front 60

Autonomous expenditure categories

Back 60

~consumption

~investment

~government purchases

~exports

Front 61

Marginal propensity to import (m)

Back 61

~the increase in import expenditures induced by a $1 increase in national income

~slope of import function

Front 62

Factors shifting net export function

Back 62

~changes in foreign income

~changes in international relative prices

Front 63

Factors causing movements along net export function

Back 63

~change in international price levels

Front 64

Marginal propensity to spend formula for macro system with government and foreign trades

Back 64

z= MPC(1-t)-m

~slope of AE function

Front 65

Stabilization policy

Back 65

any policy designed to reduce the economy's cyclical fluctuations and thereby stabilize national income (real GDP = potential GDP)

Front 66

Effects of change in net tax rate on AE function

Back 66

changes slope of AE function (movement along AE function) (inverse relationship)

Front 67

Effects of change in government purchases on AE function

Back 67

shifts AE function in a direct relationship