Unit 3 Vocabulary

Question 1

Shows how a household’s consumer spending varies with the household’s current disposable income

Answer 1

Consumption function

Question 2

the increase in consumer spending when disposable income rises by $1

Answer 2

Marginal propensity to consume (MPC)

Question 3

the increase in household savings when disposable income rises

Answer 3

The marginal propensity to save (MPS)

Question 4

the investment spending that business intend to undertake during a given period

Answer 4

Planned investment spending

Question 5

the value of the change in inventories held in the economy during a given period., Inventory investment is unplanned when a difference between actual sales and expected sales leads to the change in inventories. Actual inventory investment is the same of planned and unplanned inventory investment.

Answer 5

Inventory investment

Question 6

an initial rise or fall in aggregate spending that is the cause, not the result, of a series of income and spending changes

Answer 6

Autonomous change in aggregate spending

Question 7

the ratio of the total change in real GDP caused by an autonomous change in aggregate spending to the size of that autonomous change. It indicated the total rise in real GDP that results from each $1 of an initial rise in spending.

Answer 7

Spending multiplier

Question 8

shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world

Answer 8

Aggregate demand curve

Question 9

of a change in the aggregate price level is the change in consumer spending caused by the altered purchasing power of consumers’ assets

Answer 9

Real wealth effect

Question 10

of a change in the aggregate price level is the change in investment and consumer spending caused by altered interest rates that result from changes in the demand for money

Answer 10

Interest rate effect

Question 11

the use of government purchases of goods and services, government transfers, or tax policy to stabilize the economy

Answer 11

Fiscal policy

Question 12

the central bank’s use of changes in the quantity of money or the interest rate to stabilize the economy

Answer 12

Monetary policy

Question 13

shows the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy

Answer 13

Aggregate supply curve

Question 14

the dollar amount of the wage paid

Answer 14

Nominal wage

Question 15

are nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages

Answer 15

Sticky wages

Question 16

shows the positive relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed

Answer 16

Short-run aggregate supply curve

Question 17

shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible

Answer 17

Long-run aggregate supply curve

Question 18

the level of real GDP the economy can produce if all resources are fully employed

Answer 18

Full-employment level of output

Question 19

the quantity of aggregate output produced in the short-run macroeconomic equilibrium

Answer 19

Short-run equilibrium aggregate output

Question 20

the aggregate supply curve and the aggregate demand curve are used together to analyze economic fluctuations

Answer 20

AD-AS model

Question 21

is the factor by which is a change in tax collections changes real GDP

Answer 21

Tax multiplier

Question 22

the aggregate price level in the short-run macroeconomic equilibrium

Answer 22

Short-run equilibrium aggregate price level

Question 23

Is the level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible

Answer 23

Potential output

Question 24

an event that shifts the aggregate demand curve

Answer 24

Demand shock

Question 25

an event that shifts the short-run aggregate supply curve

Answer 25

Supply shock

Question 26

the factor by which a change in both so ending and taxes changes real GDP

Answer 26

Balanced budget multiplier

Question 27

aggregate output is below potential output

Answer 27

Recessionary gap

Question 28

when aggregate output is above potential output

Answer 28

Inflationary gap

Question 29

the difference between actual aggregate output and potential output

Answer 29

Output gap

Question 30

the use of government policy to reduce the severity of recessions and rein in excessively strong expansions

Answer 30

Stabilization policy

Question 31

programs are government programs intended to protect families against economic hardship

Answer 31

Social insurance

Question 32

increase aggregate demand

Answer 32

Expansionary fiscal policy

Question 33

reduced aggregate demand

Answer 33

Contractionary fiscal policy

Question 34

are taxes that don’t depend on the taxpayer’s income

Answer 34

Lump-sum taxes

Question 35

are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and the automatically contractionary when the economy expands

Answer 35

Automatic stabilizers

Question 36

fiscal policy that is the result of deliberate actions by policy makers rather than rules

Answer 36

Discretionary fiscal policy