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Supply creates its own demand. Production creates enough demand to purchase all the goods and services produced.
The condition in which the Real GDP that the economy is producing is less that the Natural Real GDP and the unemployment rate is greater than the natural unemployment rate.
The condition in which the Real GDP that the economy is producing is greater than the Natural Real GDP and the unemployment rate is less than the natural unemployment rate.
A public policy of not interfering with market activities in the economy.
Efficiency Wage Models
Models holding that it is sometimes in the best interest of business firms to pay their employees higher-than-equilibrium wage rates.
- The relationship between consumption and disposable income. In the consumption function used in this text, consumption is directly related to disposable income and is positive even at zero disposable income.
Marginal Propensity to Consume (MPC)
- The ratio of the change in consumption to the change in disposable income
- MPC= ΔC
The part of the consumption that is independent of disposable income.
Marginal Propensity to Save (MPS)
- The ratio of the change in saving to the change in disposable income:
- MPS= ΔS
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