Chapter 20 Money & Banking

The parameter d > 0 represents the ________ to the real interest rate.

responsiveness of investment

Y = C + I + G + NX.

Income Identity Equation

Planned investment spending is _______ related to the real interest rate

negatively

Factors that shift the IS curve to the right (Increasing Y)

Increase in: consumption (C), investment (I), government spending (G), Output in goods market. decrease in: Taxes (T), Financial Frictions (f)

Inventory investment is the change in ________ by firms.

inventory holdings

_______ is the total amount of output demanded in the economy for a given inflation rate.

Aggregate demand

The IS curve shows the relationship between ______ and the ____ when the goods market is in equilibrium

Aggregate output. real interest rate.

_______ represents all of the factors besides financial frictions and real interest rate that affect investment

Autonomous Investment

_______ is the total demand for consumer goods and services (Income Identity Equation)

Consumption expenditures (C)

______ represent the costs associated with barriers that keep financial markets from functioning efficiently

Financial frictions

____________ is the total spending on government consumption and government investment by all levels of government. (Income Identity Equation)

Government purchases (G)

_______ is the net foreign spending on domestic goods and services defined as exports minus imports. (Income Identity Equation)

Net exports (NX)

________ is total planned investment spending on physical capital and inventories by businesses plus planned investment on new housing by consumers. (Income Identity Equation)

Planned investment spending (I)

Fixed investment includes: ______

capital investment by firms and residential investment by households.

A higher real interest rate raises borrowing costs, which _______.

discourages firms from investing.

Higher value of domestic currency raises export prices and decreases import prices, which causes ____.

net exports to fall.

Consumption is _________ related to disposable income (YD).

positively

Net exports decline as the real interest rate rises because a higher real interest rate drives up the _______.

value of the domestic currency.