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Macroeconomics

Marginal Revenue

Marginal Revenue (MR) is the increase in the Total Revenue (TR) that is gained when the firm sells one additional (marginal) unit of that product. In other words, MR is the revenue obtained from the last unit sold.Marginal Revenue can remain uniform at a particular level of output. However, the MR will eventually slow down as the production…
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Marginal Propensity to Consume

The marginal propensity to consume (MPC) is the increase in consumer spending due to an increase in income. This can be expressed as ∆C/∆Y, which is a change in consumption over the change in income.For example, if a person earns an extra $10, and then spends $7.50 from the $10, then the marginal propensity to consume will be $7.5/10 = 0.75.…
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Discretionary Fiscal Policy

A discretionary fiscal policy is a government policy that changes government spending or taxes. Its purpose is to expand or shrink the economy as needed.The output is determined by the level of Aggregate Demand (AD), so a discretionary fiscal policy can be used to increase Aggregate Demand and thus also increase the output. This measure would…
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Deflation

Deflation is defined as the decrease in the average price level of goods and services. It means a general decrease in consumer prices and assets, but the increase in the value of money. If the inflation rate is negative, i.e. below 0%, then the economy is experiencing deflation.Deflation usually occurs during a deep recession, when there is a…
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Demand Pull Inflation

In an Aggregate Demand and Aggregate Supply diagram, an increase in the aggregate demand curve leads to an increase in the rate of inflation, i.e., when the aggregate demand for goods and services is greater than the aggregate supply. Demand Pull Inflation is defined as an increase in the rate of inflation caused by the Aggregate Demand curve. It…
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Liquidity Preference Theory

The Liquidity Preference Theory says that the demand for money is not to borrow money but the desire to remain liquid. In other words, the interest rate is the 'price' for money.John Maynard Keynes created the Liquidity Preference Theory in to explain the role of the interest rate by the supply and demand for money. According to Keynes, the…
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