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15 Cards in this Set
- Front
- Back
What is the formula for APC?
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Average propensity to consume (APC) = consumption/income
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What is the formula for APS?
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Average propensity to save (APS) = saving/income
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What is the formula for MPC?
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Marginal propensity to consume (MPC) = change in consumption/change in income
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What is the formula for MPS?
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Marginal propensity to save (MPS) = change in saving/change in income
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A schedule showing the amounts households plan to spend for consumer goods at different levels of disposable income.
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Consumption schedule
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A schedule that shows the amounts households plan to save (plan not to send for consumer goods), at different levels of disposable income.
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Saving schedule
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What are the nonincome determinants of consumption and saving?
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1. Wealth (value of both real assets and financial assets
2. Expectations (household expectations about future prices and income) 3. Real Interest Rates 4. Household Debt 5. Taxation |
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The increase in profit a firm anticipates it will obtain by purchasing capital (or engaging in research and development); expressed as a percentage of the total cost of the investment (or R&D) activity.
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Expected rate of return; r = Expected Profit/Investment
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The interest rate expressed in dollars of constant value (adjusted for inflation) and equal to the nominal interest rate less the expected rate of inflation.
It represents: 1) Cost of borrowed funds; 2) Opportunity cost of investing your own funds. |
Real interest rate
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What is the investment rule?
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A specific investment will be undertaken if the expected rate of return, r, equals or exceeds the real interest rate, i.
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A curve that shows the amounts of investment demanded by an economy at a series of real interest rates. The level of investment depends on the expected rate of return and the real interest rate.
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Investment demand curve (constructed by arraying all potential investment projects in descending order of their expected rates of return)
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The investment demand curve reflects an ______ (_______) relationship between the real interest rate and investment and slopes _______.
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inverse (negative); downward
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The investment demand curve shifts when changes occur in:
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1. The costs of acquiring, operating, and maintaining capital goods
2. Business taxes 3. Technology 4. The stock of capital goods on hand 5. Business expectations |
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Change in the amount (quantity of investment) is caused by:
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1. Change in the rate of interest
2. Results in movement along the investment demand curve |
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The effect on equilibrium GDP of a change in aggregate expenditures or aggregate demand (caused by a change in the consumption schedule, investment, government purchases, or net exports).
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Multiplier effect
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