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GOVERNMENT PURCHASES: Expenditures on final goods and services (that is, gross domestic product) undertaken by the government sector. Government purchases are used to operate the government (administrative salaries, etc.) and to provide public goods (national defense, highways, etc.). Government purchases do not include other government spending for transfer payments. These are expenditures on final goods by all three levels of government: federal, state, and local governments. Government purchases are financed by a mix of taxes and borrowing.
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Lesson 14: Aggregate Supply | Unit 4: Determinants
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Page: 16 of 20
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Topic:
Short Run Supply
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The short-run aggregate supply (SRAS) curve is related to the price level, and this relation depends on production cost.- An increase in production cost decreases aggregate supply and shifts the SRAS leftward.
- A decrease in production cost increases aggregate supply and shifts the SRAS rightward.
Key production cost changes:- Wages: Wages shift the SRAS from adjustments in workers perceptions of the current price level and expectations about future prices.
- Material Cost: Key economy-wide resources, like oil, can cause the SRAS to shift through big changes in price.
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MARGINAL PROPENSITY FOR GOVERNMENT PURCHASES The change in government purchases induced by a change in income or production (national income or gross domestic product). The marginal propensity for government purchases (abbreviated MPG) is another term for the slope of the government purchases line and is calculated as the change in government purchases divided by the change in income or production. The MPG plays a role in Keynesian economics. It augments the slope of the aggregate expenditures line and is part of the multiplier process. A related marginal measure is the marginal propensity to consume.
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Natural gas has no odor. The smell is added artificially so that leaks can be detected.
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"Sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations. " -- Steve Jobs, Apple Computer founder
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MPS Marginal Propensity to Save
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