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REAL INTEREST RATE: The market, or nominal interest rate, after adjusting for inflation. This is the interest rate lenders receive and borrowers pay expressed in real dollars. There two ways to think about the real interest rate, (1) the historical, after-the-fact, interest rate and (2) the desired interest rate lenders and borrowers have in mind when entering into a loan. The first one tells us the purchasing power of any interest payments received or paid. The second way of looking at the real interest rate is based on expectations of the future.
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Lesson 12: Elasticity and Demand | Unit 5: Other Measures
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Page: 24 of 25
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Topic:
Cross Elasticity Of Demand
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- How responsive is my demand to this change in my other prices? To answer these questions, we need the cross elasticity of demand.
- Cross elasticity of demand is the relative response of the demand for one good to changes in the price of another good.
- Or stated in percentage terms: the cross elasticity of demand is the percentage change in demand for one good resulting from a percentage change in the price of another good.
- The cross elasticity of demand is a handy numerical measure commonly used by economists to identify complement and substitute goods:
- For a substitute good, cross elasticity is positive, meaning that an increase in the price of one good leads to an increase in demand for the other good.
- For an complement good, cross elasticity is negative, meaning that an increase in the price of one good leads to a decrease in demand for the other good.
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DISEQUILIBRIUM, AGGREGATE MARKET The state of the aggregate market in which real aggregate expenditures are NOT equal to real production, which results in an imbalance that induces a change in the price level, aggregate expenditures, and/or real production. In other words, the opposing forces of aggregate demand (the buyers) and aggregate supply (the sellers) are out of balance. At the existing price level, either the four macroeconomic sectors (household, business, government, and foreign) are unable to purchase all of the real production that they seek or producers are unable to sell all of the real production that they have.
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PURPLE SMARPHIN
[What's This?]
Today, you are likely to spend a great deal of time watching the shopping channel seeking to buy either a pair of gray heavy duty boot socks or a 50-foot blue garden hose. Be on the lookout for small children selling products door-to-door.
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This isn't me! What am I?
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In the early 1900s around 300 automobile companies operated in the United States.
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"Old age isn't so bad when you consider the alternative. " -- Cato, Roman orator
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S&P 500
Standard&Poor's Stock Index
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