Unit 3 :)

On the Demand for Loanable Funds Curve as the interest rate decreases the quantity of loanable funs demanded____.

Increases

On the Supply of Loanable funds curve as the interest rate increases, the quantity of loans supplied _____.

Increases

A business will want a loan if the Rate of Return is at least as great as their_______.

Interest Rate

A purchase of a preexisting piece of equipment it is considered a _____

Investment in a physical asset.

MPC Formula

The change in consumer spending --------------------------------------------- change in aggregate disposable income

Crowding Out

The negative effect of a budget deficit; an increase in the interest rate that reduces the Private Quantity of Loanable Funds demanded

Physical Asset

a claim on a tangible object, such as preexisting house or preexisting piece of equipment

Wealth Effect

a higher aggregate price level reduces the purchasing power of households' wealth and reduces consumer spending

Loanable funds Market

a hypothetical market that examines the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders

Financial Asset

a paper claim that entitles the buyer to future income from the seller (loans) (Purchase: investment of current savings and wealth)

Liability

a requirement to pay income in the future

Short run Aggregate supply shows relationship between _______and_____in the short run. It also assumes that prices are _____ but wages are ____.

aggregate price level output flexible sticky

Liquid

an asset that can be quickly converted to money, without much loss of money

illiquid

an asset that can not be quickly converted into cash without loss of value

Stagflation

combination of inflation and falling aggregate output that comes with a negative supply shock

A movement down the SRAS curve (Short run aggregate supply) leads to [deflation/inflation] and [lower/higher] aggregate output.

deflation lower

The Demand for Loanable Funds curves____

down

What does Crowding out cause?

economy adds less private physical capital each year than it would if the budget were balanced or in surplus leads to lower long run economic growth

wealth

for a household is its accumulated savings

Interest Rate Effect

higher aggregate price level makes household hold more money and leads to a rich in interest rates (and a fall in investment spending and consumer spending)

A positive supply shock causes the Aggregate Output to ______ and the Aggregate Price level to _____.

increase decrease

If you spend funds that add to the stock of physical capitals you are engaging _____.

investing spending

A purchase of a financiall asset or physical asset is called an _____

investment

Equilibrium Interest Rate

is where the quantity of loanable funds supplied equals quantity of loanable funds demanded

A negative supply shock leads to a ______ aggregate output and a _____aggregate price level.

lower higher

Movement down the Aggregate Demand Curve, leads to a _____aggregate price level and _____aggregate output.

lower higher

A rise in the aggregate price level _____ C, I, and X-IM.

reduces

Reducing the tax on investment income (interest on bonds and dividend on stocks) and increasing the sales taxes of consumption of goods and services will cause the Ouantity of loanable supplied to shift to the _____.

right

Government spending (makes gov. a borrower) occurs and the Demand curve for loanable funds market shifts to the ______ by the amount of government spending. The Interest Rate and total amount of borrowing ____. Private borrowing _____. Businesses will engage in ______investment spending.

right increases falls less

Multiplier

shows change in real GDP caused by a change in autonomous change in spending, and the size of that change

SRAS is not affected by _____ but the multiplier affects it.

spending

Marginal Propensity to Consume (MPC)

the change in consuming for every 1 dollar increase in disposable income

Interest Rate (r)

the price, calculated as percentage of the amount borrowed, charged by the lender to a borrower for the use of a savings for one year

negative supply shock

total production falls at every level

Positive Supply Shock

total production increases at every price level

negative demand shock

total spending falls

positive demand shock

total spending rises

SRAS curve curves_____.

up

The Supply of loanable funds curves ____.

up

A positive demand shock causes the.... Aggregate Demand? Agreggate Output? Aggregate Price Level?

Aggregate Demand shifts to the right Aggregate Output goes up Aggregate Price level goes up

Equation For Rate of Return

(Revenue from project-Cost of Project) --------------------------------------------------- Cost of Project multiplied by 100

A Negative Demand Shock causes what to happen to Aggregate Demand Agreggate Output Aggregate Price Level

-Aggregate Deomand shifts Left -A Output goes down -A price level goes down

Shifts to the Aggregate Demand Curve

-changes in consumer/ investor expectations -changes in wealth 1)income 2)assets -changes in physical capital stocks

Long Run Aggregate Supply

-often referred as output -assumes both wages and prices are flexible

Long Run Aggregate Supply Shifts

-shifts for long term, permanent changes to productive capability -changes in physical capital available -changes in population (labor force) [more labor force, more goods, more services] -permanent changes in commodities

Short Run effects of a positive demand shock

-temporary inflation gap -unemployment decreases -increases aggregate price level and aggregate output

Aggregate Demand Curve

-total amount of demand in an economy -shows relationship between aggregate price level and output (GDP)

aggregate supply

-total amount of supply in an economy -2 kinds: Short run and long run -shows relationship between aggregate price level and output (GDP)

Equation for the multiplier

1 ---------- 1-MPC

Short Run Aggregate Supply shifters

1) price of commodities (input,oil,iron) 2) nominal wage rates (not adjusted for inflation) 3) Changes in productivity -Technology -Efficiency -Population (more population, more supply)

Why does the Aggregate Demand Curve Slope Down

1) wealth effect 2)Interest Rate Effect