Aggregate Demand and the Multiplier

Question 1

the total income received by all factors of production in a given period (another way to get Real GDP)

Answer 1

Aggregate Income

Question 2

Inverse relationship between Price Level and the Quantity of Aggregate Output

Answer 2

Downward Sloping AD Curve

Question 3

relative incomes, relative prices, exchange rates

Answer 3

Determinants of Net Exports

Question 4

MPC/MPS

Answer 4

Transfer Multipliers

Question 5

the factor by which a change in both spending and taxes changes real GDP

Answer 5

Balanced Budget Multiplier

Question 6

Price Level (PL)

Answer 6

Vertical Axis of AS/AD Graph

Question 7

Real GDP (Y)

Answer 7

Horizontal Axis of AS/AD Graph

Question 8

the economy’s total production of goods and services for a given time period (aka Real GDP)

Answer 8

Aggregate Output

Question 9

the sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports, is the total spending on domestically produced final goods and services in the economy (aka Real GDP)

Answer 9

Aggregate Spending

Question 10

C + I + G + NX

Answer 10

The Aggregate Demand Curve

Question 10

the change in consumption brought about by a change in real wealth that results from a change in the price level

Answer 10

Real Wealth Effect

Question 11

The tendency for increases in the price level to increase the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases).

Answer 11

Interest Rate Effect

Question 12

a lower price level causes exports to become relatively cheaper, which stimulates spending on net exports

Answer 12

Exchange Rate (foreign purchases) Effect

Question 13

Wealth Effect, Interest Rate Effect, Exchange Rate Effect

Answer 13

Reasons AD Curve is Downward Sloping

Question 14

Change in Consumption, Investment, Government Spending or Net Exports

Answer 14

What causes a shift in AD

Question 15

Wealth, Income, Income Taxes, Expectations of Economic Conditions, Interest Rates

Answer 15

Determinants of Consumption

Question 16

the value of assets owned

Answer 16

Wealth

Question 17

earnings from work or investment

Answer 17

Income

Question 18

Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends).

Answer 18

Income Taxes

Question 19

Consumers expect changes in economic conditions in the near future, which impacts how much they consume today.

Answer 19

Expectations of Economic Conditions

Question 20

the cost of borrowing money

Answer 20

Interest Rates

Question 21

Automobiles, College Education, Durable Goods (e.g. appliances)

Answer 21

Interest Rate Sensitive Components of Consumption

Question 22

Expectations of Future Economic Conditions, Interest Rates, Unplanned Changes in Business Inventory

Answer 22

Determinants of Investment

Question 23

When economic conditions change and as a result businesses struggle selling their product and their inventory rises.

Answer 23

Unplanned Changes in Business Investory

Question 24

Government policy that attempts to manage the economy by controlling taxing and spending.

Answer 24

Fiscal Policy

Question 25

Fiscal Policy

Answer 25

Determinants of Government Spending

Question 26

the management of the money supply and interest rates by the Federal Reserve

Answer 26

Monetary Policy

Question 27

Households (C), firms (I), and government (G) must spend money on certain things regardless of how much income they generate

Answer 27

Automonous Expenditure

Question 28

the increase in consumer spending when disposable income rises by $1

Answer 28

Marginal Propensity to Consume (MPC)

Question 29

the increase in household savings when disposable income rises by $1

Answer 29

Marginal Propensity to Save (MPS)

Question 30

Income remaining for a person to spend or save after all taxes have been paid

Answer 30

Disposable Income

Question 31

1/MPS

Answer 31

Spending Multiplier

Question 32

-MPC/MPS

Answer 32

Tax Multiplier