Deck 4 Flashcards
(13 cards)
What is the cross elasticity of demand using the ARC method
change in quantity demanded/average quantity
/divided
change in price/average price
describe marginal propensity to consume
measure of each additional dollar of disposable income that consumer will spend MPC + MPS = 1
describe marginal propensity to save
percentage of each additional income that is saved
what are the 2 types of profits that economists refer to
Normal profit and economic profit
what is normal profit
the amount of profit necessary to compensate the owners of a business for their capital and managerial skills. Just enough profit to keep business open
what is economic profit
The profit in excess of normal profit
what is nominal GDP
price of all goods and services at current market prices
what is real GDP
price of all goods and services but takes out the effect of inflation
what is Net Domestic product
GDP minus depreciation
what is gross national product
price of all goods and services supplied by a nations residents worldwide
what is the multiplier formula
=1/MPS * change in spening
If MPS is.25 and spending increased by $1,000,000 calulate multiplier
= $4,000,000
Define multiplier
an increase in spending by consumers, businesses, or the government has multiplied effect on equilibrium GDP.
