March 21, 2018 

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ANNUITY: The receipt of payments at regular intervals from a established fund. Annuities are commonly used for insurance and retirement programs. It works in this way: A fund, which can be established either through a one-time sum of money or a series of payments, is exhausted over time with fixed, periodic payments. The amount of each payment depends on the interest accrued on the outstanding balance in the fund, and the length of time scheduled to exhaust the fund. For example, if your pension plan is based on an annuity that begins payments at the age of 65, then the size of the payments depends on whether you expect to live 5, 10, 15, or more years and set up payments accordingly. It's very similar to amortization, but in the reverse direction.

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Lesson 13: Aggregate Demand | Unit 3: The Curve Page: 15 of 22

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  • The basic setup, shape, and position of the aggregate demand curve on a graph. The AD curve shows the negative relationship between the price level and real GDP.
  • What causes the negative slope of the AD curve--namely: 1) the real-balance effect, 2) the interest-rate effect, and 3) the net-export effect.
  • Why the real-balance effect means that a higher (or lower) price level reduces (or increases) the purchasing power of money, resulting in less (or more) real production purchased.
  • Why the interest-rate effect means that a higher (or lower) price level leads to higher (or lower) interest rates and thus a higher (or lower) cost of borrowing which decreases (or increases) consumption and investment expenditures on real production.
  • Why the net-export effect means that a higher (or lower) price level decreases (or increases) exports and increases (or decreases) imports thus decreasing (or increasing) net export expenditures on real production.

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A perfectly competitive firm produces the profit-maximizing quantity of output that generates the highest level of profit. This profit approach is one of three methods that used to determine the profit-maximizing quantity of output. The other two methods involve a comparison of total revenue and total cost or a comparison of marginal revenue and marginal cost.

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