Aggregate Expenditures

Question 1

Aggregate expenditures

Answer 1

The current value of all finished goods and services. GDP=AE=C+I+G+(X-M). Consumption is a major factor

Question 2

Savings S

Answer 2

The difference between income and consumption, the amount of a disposable income not spent

Question 3

Disposable income Y

Answer 3

Income remaining after deduction of taxes C+S

Question 4

Average propensity to consume APC

Answer 4

The percentage of income that is consumed APC=Consumption/disposable income

Question 5

Average propensity to save APS

Answer 5

The percentage of income that is saved APS=savings/disposable income. APS+APC=1

Question 6

What do average propensity to consume and save represent?

Answer 6

Represent the proportion of income that is saved

Question 7

What does marginal propensity measure?

Answer 7

Part of additional income that is saved or consumed

Question 8

Marginal propensity to consume MPC

Answer 8

The change in consumption associated with a given change in income. MPC=change in consumption/change in disposable income

Question 9

Marginal propensity to save MPS

Answer 9

The change in consumption associated with a given change in income MPS=Change in savings/change in disposable income. MPC+MPS=1

Question 10

Determinants of consumption and savings

Answer 10

Wealth, expectations, household debt, taxes

Question 11

Investment

Answer 11

Spending by businesses that adds to the productive capacity of the economy. Depends on rate of return, level of tech, business expectations about the economy

Question 12

Determinants of demand

Answer 12

Expectations, tech changes, operating costs, capital goods on hand

Question 13

On what does aggregate investment based?

Answer 13

It is based on c and I

Question 14

Keynesian macroeconomic equilibrium

Answer 14

All injections are equal to all withdrawals. There are no pressures pushing the economy to a higher or lower level of output

Question 15

Formula of spending multiplier K

Answer 15

K=1/1-MPC=1/MPS

Question 16

What things do equal to each other at equilibrium?

Answer 16

Aggregate savings equal aggregate investment

Question 17

What changes change in increased spending

Answer 17

Income is changed by more than the initial change in spending

Question 18

In what does the paradox of thrift result?

Answer 18

Households wants to save more but at equilibrium they end up saving less

Question 19

Injection

Answer 19

Increase of spending, including investment, gov spending, and exports

Question 20

Formula of tax multiplier

Answer 20

Tax multiplier=MPC/1-MPC < spending multiplier by a value of 1

Question 21

Does the increased or decreased taxes have any impact and on what?

Answer 21

It has less impact on income, employment, and output than an equivalent change in government spending

Question 22

Balanced budget multiplier

Answer 22

Equal changes in gov spending and taxation (a balanced budget) lead to an equal change in income. Balanced budget equals to 1

Question 23

What are injections and withdrawals?

Answer 23

Exports are injections and imports withdrawals

Question 24

GDP gap

Answer 24

The difference between actual income and potential income (GDP at full employment). Can be positive or negative

Question 25

Recessionary gap

Answer 25

The increase in AS needed (when expanded by the multiplier) to bring a depressed economy back at full employment

Question 26

Inflationary gap

Answer 26

The spending reduction necessary (when expanded by the multiplier) to bring an overheated economy back to full employment