Definition - AVERAGE PROPENSITY TO CONSUME: The ratio of...

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AVERAGE PROPENSITY TO CONSUME: The ratio of total consumption to total income. CONSTANT OF CONSUMPTION - The level of consumption expenditure which is independent of the level of income. CONSUMPTION FUNCTION A systematic relationship between income and consumption such that the level of income determines the level of consumption. EFFECTIVE DEMAND FAILURE A situation in which, although the sum of the planned market excess demands is zero, the sum of the effective market excess demands is negative. This occurs only when transistors must have money to make their excess demands effective, and their only source of money is current receipts from current sales. HIGH EMPLOYMENT BUDGET: A device to compare alternative budget programs as to their possible effects on aggregate demand. High employment expenditures are those outlays that would be made under existing (or proposed) spending programs if there were only normal unemployment. High employment receipts are the tax revenues that would be received under existing (or proposed) tax schemes there were only normal unemployment. MARGINAL PROPENSITY TO CONSUME: The ratio of the change in consumption to the change income. MULTIPLIER The ratio of the change income caused by increase in autonomous expenditure to that increase. PARADOX OF THRIFT The notion that when many or most individuals attempt to save more out of the disposable income, aggregate income decreases. This can only happen when savings takes the form of the hoarding of money. SAY'S LAW The proposition that the sum of the market excess demands for all goods except money must be zero. (supply creates its own demand) STAGFLATION (INFLATION RECESSION): the period when inflation and recession occur at the same time. Rapid increases in the price level during periods of recession or high unemployment are also known as stagflation. SUPPLY SIDE POLICIES - Policies emphasizing tax and regulation reform which will increase incentives to produce and reduce barriers to production thereby making it possible to increase the sustainable rate of growth of real GDP. UNIT MULTIPLIER THEOREM: The notion that an increase (decrease) in government expenditures matched by an increase (decrease) in tax receipts would increase (decrease) total spending by the amount of the increased (decreased) government spending tax receipts. This is incorrect unless savings takes the form of the hoarding of money. SHORT RUN EQUILIBRIUM is present in the good and services market at the price level where the aggregate quantity demanded is equal to the aggregate quantity supplied. This occurs where the AD and SRAS curves intersect. If a price level is less than P were present, the aggregate quantity demanded would exceed the aggregate quantity supplied. Purchasers would be seeking to buy more goods and services than producers were willing to produce. LONG RUN EQUILIBRIUM : The price level in the economy-wide goods and services market
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Definition - AVERAGE PROPENSITY TO CONSUME: The ratio of...

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