Ch 9 - Aggregate Demand Flashcards
aggregate demand
the total quantity of output demanded at alternative price levels in a given time period, ceteris paribus; 4 components are consumption C, investment I, government spending G, and net exports X - M
aggregate supply
the total quantity of output producers are willing and able to supply at alternative price levels in a given time period, ceteris paribus
equilibrium (macro)
the combination of price level and real output that is compatible with both aggregate demand and aggregate supply
consumption
expenditure by consumers on final goods and services
disposable income
after-tax income of consumers; personal income less personal taxes
saving
that part of disposable income not spend on current consumption; disposable income less consumption
average propensity to consume (APC)
total consumption in a given period divided by total disposable income (C/Yd)
marginal propensity to consume (MPC)
the fraction of each additional (marginal) dollar of disposable income spent on consumption; the change in consumption divided by the change in disposable income (C/Yd)
marginal propensity to save (MPS)
the fraction of each additional (marginal) dollar of disposable income now spent on consumption; 1 - MPC
wealth effect
a change in consumer spending caused by a change in the value of owned assets
consumption function
a mathematical relationship indicating the rate of desired consumer spending at various income levels (current consumption C = autonomous consumption a + (marginal propensity to consume b * disposable income Yd)
dissaving
consumption expenditure in excess of disposable income; a negative saving flow
investment
expenditures on (production of) new plant, equipment, and structures (capital) in a given time period, plus changes in business inventory
full-employment GDP
the value of total output (real GDP) produced at full employment
equilibrium GDP
the value of total output (real GDP) produced at macro equilibrium (AS = AD)
