Consumption, Savings-definitions, draw it
Там все понятно посмотришь презентацию 3
Investment, Investment function
Презентация 4
Firms invest in inventories, which are produced goods held in storage in anticipation of later sales. Firms also stockpile raw materials and intermediate goods used in the production process. Goods held in inventories are counted for the year produced, not the year sold. Although inventories are a relatively small portion of the overall investment sector, inventories are a critical component of changes in GDP over the business cycle. If the economy is slowing down, possibly entering a recession, the bearer of the bad news will often be an undesired accumulation of inventories. As consumers reduce their purchases, sales of goods and services slow, inventories build up, and firms slash production (laying off employees) to reduce unwanted (and costly) inventories.
7.Savings, Summarize the investing in stocks and bonds +factors that affect the rate of return on a given savings or investment
Презентация 4
Stocks, or shares of stock, represent an ownership interest in a corporation. Bonds are a form of long-term debt in which the issuing corporation promises to pay the principal amount at a specific date. Stocks pay dividends to the owners, but only if the corporation declares a dividend. Dividends are a distribution of a corporation's profits. Bonds pay interest to the bondholders. Generally, the bond contract requires that a fixed interest payment be made every six months
Savings, Summarize other types of investments + factors that affect the rate of return on a given savings or investment
Aggregate Demand, Shifts of the Aggregate Demand Curve
Совокупный спрос (АD)– это реальный объем валового внутреннего продукта, который домашние хозяйства, фирмы и государство готовы приобретать при каждом данном уровне цен, т.е. экономический агрегат, суммирующий величины локальных спросов на все товары и услуги, предлагаемые на рынке.
Включает в себя:
- потребительский спрос;
- инвестиционный спрос;
- спрос со стороны государства;
- чистый экспорт.
Презентация 6
Fiscal Policy-Influences aggregate demand
Many factors influence aggregate demand besides monetary and fiscal policy.
In particular, desired spending by households and business firms determines the overall demand for goods and services.
When desired spending changes, aggregate demand shifts, causing short-run fluctuations in output and employment.
Monetary and fiscal policies are sometimes used to offset those shifts and stabilize the economy.
HOW MONETARY POLICY INFLUENCES AGGREGATE DEMAND
The aggregate demand curve slopes downward for three reasons:
-The wealth effect
-The interest-rate effect
-The exchange-rate effect
THE DOWNWARD SLOPE OF THE AGGREGATE DEMAND CURVE
The price level is one determinant of the quantity of money demanded.
A higher price level increases the quantity of money demanded for any given interest rate.
Higher money demand leads to a higher interest rate.
The quantity of goods and services demanded falls.
The end result of this analysis is a negative relationship between the price level and the quantity of goods and services demanded.
CHANGES IN THE MONEY SUPPLY
The FED/MNB can shift the aggregate demand curve when it changes monetary policy.
An increase in the money supply shifts the money supply curve to the right.
Without a change in the money demand curve, the interest rate falls.
Falling interest rates increase the quantity of goods and services demanded.
When the Fed/MNB increases the money supply, it lowers the interest rate and increases the quantity of goods and services demanded at any given price level shifting aggregate-demand to the right.
When the FED/MNB contracts the money supply, it raises the interest rate and reduces the quantity of goods and services demanded at any given price level, shifting aggregate-demand to the left.
HOW FISCAL POLICY INFLUENCES AGGREGATE DEMAND
Fiscal policy refers to the government’s choices regarding the overall level of government purchases or taxes.
Fiscal policy influences saving, investment, and growth in the long run.
In the short run, fiscal policy primarily affects the aggregate demand.
CHANGES IN GOVERNMENT PURCHASES
When policymakers change the money supply or taxes, the effect on aggregate demand is indirect—through the spending decisions of firms or households.
When the government alters its own purchases of goods or services, it shifts the aggregate-demand curve directly.
There are two macroeconomic effects from the change in government purchases:
The multiplier effect
Government purchases are said to have a multiplier effect on aggregate demand.
Each HUF spent by the government can raise the aggregate demand for goods and services by more than a HUF.
The multiplier effect refers to the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending.
The formula for the multiplier is:
Multiplier = 1/(1 - MPC)
An important number in this formula is the marginal propensity to consume (MPC).
It is the fraction of extra income that a household consumes rather than saves.
If the MPC is 3/4, then the multiplier will be:
Multiplier = 1/(1 - 3/4) = 4
In this case, a $20 billion increase in government spending generates $80 billion of increased demand for goods and services.
The crowding-out effect
Fiscal policy may not affect the economy as strongly as predicted by the multiplier.
An increase in government purchases causes the interest rate to rise.
A higher interest rate reduces investment spending.
This reduction in demand that results when a fiscal expansion raises the interest rate is called the crowding-out effect.
When the government increases its purchases by $20 billion, the aggregate demand for goods and services could rise by more or less than $20 billion, depending on whether the multiplier effect or the crowding-out effect is larger.
CHANGES IN TAXES
When the government cuts personal income taxes, it increases households’ take-home pay.
Households save some of this additional income.
Households also spend some of it on consumer goods.
Increased household spending shifts the aggregate-demand curve to the right.
The size of the shift in aggregate demand resulting from a tax change is affected by the multiplier and crowding-out effects.
It is also determined by the households’ perceptions about the permanency of the tax change.
SUMMARY
An increase in the price level raises money demand and increases the interest rate.
A higher interest rate reduces investment and, thereby, the quantity of goods and services demanded.
The downward-sloping aggregate-demand curve expresses this negative relationship between the price-level and the quantity demanded.
Policymakers can influence aggregate demand with monetary policy.
An increase in the money supply will ultimately lead to the aggregate-demand curve shifting to the right.
A decrease in the money supply will ultimately lead to the aggregate-demand curve shifting to the left.
Policymakers can influence aggregate demand with fiscal policy.
An increase in government purchases or a cut in taxes shifts the aggregate-demand curve to the right.
A decrease in government purchases or an increase in taxes shifts the aggregate-demand curve to the left.
When the government alters spending or taxes, the resulting shift in aggregate demand can be larger or smaller than the fiscal change.
The multiplier effect tends to amplify the effects of fiscal policy on aggregate demand.
The crowding-out effect tends to dampen the effects of fiscal policy on aggregate demand.
Because monetary and fiscal policy can influence aggregate demand, the government sometimes uses these policy instruments in an attempt to stabilize the economy.