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Chapter 11

ECON 2010 Chapter Notes - Chapter 11: Monetarism, Cash Flow, Disposable And Discretionary Income

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ECON 2010

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Chapter 11 (11.1,11.2,11.4) 03/10/2012
Aggregate Expenditure
Amount of money spent throughout the entire economy.
AE = C + I + G + Nx
Investment refers to planned investment
Changes in Inventories
If AE = GDP, we have no unplanned changes
Macroeconomic Equilibrium
State the economy tends to move towards
Most boring state
Disposable Income
The more money you’re making, the more you are going to spend
Household Wealth
If you feel richer you are going to spend more money
Expected Future Income
Expections of how much you are going to make in the future
Price level/Interest Rate
If the interest rates are low it is much easier to do.
In a sense, you are borrowing money from your future self.
Marginal Propencity to Consume
If you get a raise in Disposable income, how much more will you spend.
Difficult to calculate.
If people gain an extra dollar, they are likely to spend 90 cents of it in the U.S.
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Consumption Savings
GDP Growth
If we want as high as income as possible we need to consume.
Consumption can take the place of some investment money.
Cash Flow
The income stream for firms
Is used to pay normal, day to day, business expenses.
Tends to be positive.
Many financial markets overestimate a firms cash flow.
In a recession you want people to spend more money in order to maintain the cash flow.
Net Exports
Influenced by relative production between countries
Relative Growth Rates
Exchange Rates
Price Levels
Multiplier Effect
Multiplier = 1/1-MPC (Marginal Propensity to Consume)
Gives you how much money is spent in the economy.
This is the argument for increase in minimum wage laws
Argument in favor of big social welfare programs
Paradox of Thrift
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