Chapter 23 - Aggregate Expenditure and Equilibrium Output Flashcards Preview

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Flashcards in Chapter 23 - Aggregate Expenditure and Equilibrium Output Deck (21):
1

aggregate output

The total quantity of goods and services produced (or supplied) in an economy in a given period.

2

aggregate income

The total income received by all factors of production in a given period.

3

aggregate output (income) (Y)

A combined term used to remind you of the exact equality between aggregate output and aggregate income.

4

consumption function

The relationship between consumption and income.

5

marginal propensity to consume (MPC)

That fraction of a change in income that is consumed, or spent.

6

aggregate saving (S)

The part of aggregate income that is not consumed.

7

identity

Something that is always true.

8

marginal propensity to save (MPS)

That fraction of a change in income that is saved.

9

planned investment (I)

Those additions to capital stock and inventory that are planned by firms.

10

actual investment

The actual amount of investment that takes place; it includes items such as unplanned changes in inventories.

11

equilibrium

Occurs when there is no tendency for change. In the macroeconomic goods market, equilibrium occurs when planned aggregate expenditure is equal to aggregate output.

12

planned aggregate expenditure (AE)

The total amount the economy plans to spend in a given period. Equal to consumption plus planned investment:
AE (=–) C+I.

13

multiplier

The ratio of the change in the equilibrium level of output to a change in some exogenous variable.

14

exogenous variable

A variable that is assumed not to depend on the state of the economy—that is, it does not change when the economy changes.

15

S

S (=–) Y-C

16

MPC

MPC (=–) slope of consumption function (=–) (change in C) / (change in Y)

17

MPC + MPS

MPC + MPS (=–) 1

18

AE

AE (=–) C + I

19

Equilibrium condition

Y = AE or Y = C + I

20

Saving/investment approach to equilibrium

S = I

21

Multiplier

Multiplier (=–) 1 / MPS (=–) 1 / (1 - MPC)