macroeconomicsExam2notes

macroeconomicsExam2notes - Econ test 2 aggregate demand is...

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Econ test 2 aggregate demand is the total demand for final goods and services in the economy ( Y ) at a given time and price level [1] . This is the demand for the gross domestic product of a country when inventory levels are static. It is often called effective demand or abbreviated as 'AD'. In a general aggregate supply -demand chart, the aggregate demand curve ( AD ) slopes downward (indicating that higher outputs are demanded at lower price levels). In economics , aggregate supply is the total supply of goods and services by a national economy during a specific time period. There are at least two different versions of this concept. Macroeconomic equilibrium for an economy in the short run is established when aggregate demand intersects with short-run aggregate supply . This is shown in the diagram below Cyclical Deficit From Reuters Financial Glossary The portion of a country's budget deficit which is due to economic swings, with budget positions tending to deteriorate as economies slow, tax revenues fall and welfare spending rises. The cyclically- adjusted deficit strips out the impact that economic swings have on budgetary health. Structural deficit forms part of the public sector deficit . Structural deficit differs from cyclical deficit in that it exists even when the economy is at its potential. Structural deficit issues can only be addressed by explicit and direct government policies: reducing spending (including entitlements), increasing the tax base, and/or increasing tax rates. It can be described as more "chronic" or long-term in nature hence needing government action to remove it. The opposite of a structural deficit is a structural surplus . Likewise, the opposite of a cyclical deficit is a cyclical surplus .
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In economics , Say’s Law or Say’s Law of Markets is a principle attributed to French businessman and economist Jean-Baptiste Say (1767-1832) stating that there can be no demand without supply . A central element of Say's Law is that recession does not occur because of failure in demand or lack of money . The more goods (for which there is demand) that are produced, the more those goods (supply) can constitute a demand for other goods. For this reason, prosperity should be increased by stimulating production, not consumption. In Say's view, creation of more money simply results in inflation ; more money demanding the same quantity of goods does not represent an increase in real demand. The marginal propensity to save (MPS) refers to the increase in saving (non-purchase of current goods and services) that results from an increase in income. For example, if a family earns one extra dollar, and the marginal propensity to save is 0.35, then of that dollar, the family will spend 65 cents and save 35 cents. It can also go the other way, referring to the decrease in saving that results from a decrease in income. It is crucial to Keynesian economics and is the key variable in determining the value of the multiplier . Mathematically, the marginal propensity to save (MPS) function is expressed as the derivative of the
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This note was uploaded on 05/06/2008 for the course ECON 2301 taught by Professor Hudgins during the Spring '08 term at Collin College.

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macroeconomicsExam2notes - Econ test 2 aggregate demand is...

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