DSST Money & Banking Part 1

Permanent income the present value of expected income

This preview shows page 5 - 7 out of 19 pages.

Permanent income:  the present value of expected income over the lifetime of the individual. Modern Theory implies that velocity is procyclical:   due to current income levels relative to permanent income  levels – not interest rates. Macro General Equilibrium Analysis: Aggregate Demand and Supply:  Product market refers to goods and services Consumption goods (C ^ ):  the actual amount of goods and services produced for personal consumption  (apples, shoes, etc) Gross Private Domestic Investment Goods GPDI (I ^ ):  the actual amount of new private capital  produced – included plant and equipment, changes in inventories, and new residential construction Government Purchases of Goods and Services (G ^ ):  actual amount of goods and services produced  for state, local, and federal governments, but NOT ALL SPENDIG as it does not included transfer  payments like unemployment or S.S. Exports (E^):  actual amount of goods and services produced for use outside U.S. Total Aggregate Output of US (Total Domestic Production (X)) is the sum of the above:  X =  C+I+G+E X is known as GNP (Gross National Product):  total market value of all final goods and services  produced in the economy during a year. Aggregate Income (Y):  the gross, total value of income earned in the production of GNP.  Aggregate  income equals the value of aggregate output. Aggregate Demand (AD):  the schedule of total amount of planned expenditures on goods and services  at the various income levels: AD = C+I+G+NC, where C is personal consumption demand, I is investment  demand, G is government demand, and NX is net export demand.  The terms planned, desired, ex ante,  and intended are interchangeable. Exogenous variable:  A variable whose value does not depend on the values of other economic  variables. Endogenous variables:  A variable whose value DOES depend on the values of other economic  variables.  Consumption and Investment spending are this type since their values depend on income and  interest rates. Autonomous Consumption:  Amount of consumption spending that is independent of income. Induced Consumption:  amount of consumption spending that varies with the level of income.
Image of page 5

Subscribe to view the full document.

Marginal Propensity to consume (mpc):  The slope of the consumption function which equals the  additional consumption spending per additional dollar of disposable income Disposable Income (X D ):  Amount of income available for spending by consumers = earned income plus  unearned income minus taxes.
Image of page 6
Image of page 7

{[ snackBarMessage ]}

Get FREE access by uploading your study materials

Upload your study materials now and get free access to over 25 million documents.

Upload now for FREE access Or pay now for instant access
Christopher Reinemann
"Before using Course Hero my grade was at 78%. By the end of the semester my grade was at 90%. I could not have done it without all the class material I found."
— Christopher R., University of Rhode Island '15, Course Hero Intern

Ask a question for free

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern