Term
| Aggregate Expenditure Model |
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Definition
| focuses on the short-run relationship between total spending and real GDP (assuming the price level is constant) |
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Term
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Definition
| Consumption + Planned investment + Government purchases + Net exports |
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Term
| For the economy as a whole Macroeconomic equilibrium occurs where total spending, or aggregate expenditure equals what? |
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Definition
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Term
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Definition
| inventories are unchanged and the economy is in macroeconomic equilibrium |
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Term
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Definition
| inventories rise and GDP and employment decrease |
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Term
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Definition
| inventories fall and GDP and employment increase |
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Term
| What are the 5 most important variables that determine the level of consumption? |
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Definition
1. Current disposable income
2. Household wealth
3. Expected future income
4. The price level
5. The interest rate |
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Term
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Definition
| Relationship b/w consumption spending and disposable income |
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Term
| Marginal propensity to consume (MPC) |
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Definition
| The slope of the consumption function: The amount by which consumption spending changes when disposable income changes. |
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Term
| Marginal propensity to save (MPS) |
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Definition
| The amount by which saving changes when disposable income changes. |
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Term
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Definition
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Term
| What are the 4 most important variables that determine the level of investment? |
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Definition
1. Expectations of future profitability
2. Interest Rate
3. Taxes
4. Cash Flow |
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Term
| What are the 3 most important variables that determine the level of net exports? |
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Definition
1. The price level in the US relative to the price levels in other countries
2. The growth rate of GDP in the US relative to the growth rates of GDP in other countries
3. The exchange rate between the dollar and other currencies |
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Term
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Definition
An expenditure that does not depend on the level of GDP.
ex. investment spending has a multiplied effect on equilibrium real GDP |
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Term
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Definition
| The increase in equilibrium real GDP divided by the increase in autonomous expenditure. |
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Term
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Definition
| The process by which an increase in autonomous expenditure leads to a larger increase in real GDP. |
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Term
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Definition
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Term
| The larger the MPC, the _________ the value of the multiplier. |
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Definition
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