[MACRO] 04 - Aggregate Expenditure and Equilibrium Output

Question 1

Definition: Saving

Answer 1

The part of a household’s income that it does not consme in a given period. Distinguished from savings, which is the current stock of accumulated saving.

Question 2

Savings Formula

Answer 2

S = Y - C

Question 3

Definition: Marginal Propensity to Consume (MPC)

Answer 3

The fraction of a change in income that is consumed, or spent. Change in C/ Change in Y

Question 4

Definition: Marginal Propensity to Save (MPS)

Answer 4

The fraction of a change in income that is saved.

Question 5

Definition: Change in Inventory

Answer 5

Production minus sales

Question 6

Definition: Investment

Answer 6

Purchases by firms of new buildings and equipment and additions to inventories, al of which add to firms’ capital stock

Question 7

Definition: Planned Aggregate Expenditure (Without Gov)

Answer 7

The total amount the economy plans to spend in a given period.

AE = C + I

Question 8

Definition: Macroeconomical Equilibrium

Answer 8

In the goods market equilibrium occus when planned aggregate expenditure is equal to aggregate output.

Y = AE

On a plot the values before equilibrium are considered dis-savings, whilst the values after equilibrium are labelled savings.

Question 9

Definition: Multiplier effect

Answer 9

Result of injecting a certain amount of money into an economy, as it circulates it will generate more income for everyone in the economy.

Question 10

Factors determining Consumption (4)

Answer 10

1) Income
2) Wealth
3) Expectations about the future
4) Interest Rates