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AE LINE: Another term for aggregate expenditure line, which is a line representing the relation between aggregate expenditures and gross domestic product used in the Keynesian cross. The aggregate expenditure line is obtained by adding investment expenditures, government purchases, and net exports to the consumption line. As such, the slope of the aggregate expenditure line is largely based on the slope of the consumption line (which is the marginal propensity to consume), with adjustments coming from the marginal propensity to invest, the marginal propensity for government purchases, and the marginal propensity to import. The intersection of the aggregate expenditures line and the 45-degree line identifies the equilibrium level of output in the Keynesian cross.

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Lesson 10: Utility and Demand | Unit 2: A Simple Choice Page: 6 of 21

Topic: Demand For A Good <=PAGE BACK | PAGE NEXT=>

  • Demand captures changes in quantity demanded resulting from changes in the price.

      Let's take stock of what has happened:

      • The price of beach admission has declined from $1 per hour to $0.50 per hour.
      • The quantity demanded of beach time has increased from 2 hours to 4 hours.
      • Total utility has increased from 22 utils to 36 utils because a larger quantity has been consumed.
      • Marginal utility has decreased from 10 utils to 6 utils, again because a larger quantity has been consumed and the law of diminishing marginal returns has been at work.

    • In conclusion, the lower price of admission has allowed me to purchase a larger quantity of beach time with a given income.

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DECISION LAG

The time lag that it takes government leaders and policy makers to determine the appropriate government action needed to address an economic problem. The decision lag arises because it takes time for policy makers to chose among the array of possible policy actions, each with assorted consequences that appeal differently to different political constituencies. This "inside lag" is one of four policy lags associated with monetary and fiscal policy. The other two "inside lags" are recognition lag and implementation lag, and one "outside lag" is implementation lag. All four policy lags can reduce the effectiveness of business-cycle stabilization policies and can even destabilize the economy.

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Today, you are likely to spend a great deal of time searching for rummage sales seeking to buy either a pair of designer sunglasses or looseleaf notebook paper. Be on the lookout for fairy dust that tastes like salt.
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The average length of a "business lunch" is about 36 minutes.
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