Chapter 11 Flashcards
Aggregate expenditure (Y)
Includes consumption(C), government spending (G), net exports (NX), and actual investment (I) by firms
Y=C+I+G+NX
Marginal propensity to consume (MPC)
The amount that consumption increases when after-tax income increases by $1
Interest rate
The price of money
For savers: the price received for letting a bank use money for a specified period of time
For borrowers: the price of using money for a specified period of time
Real exchange rate
The value of goods in one country expressed in terms of the same goods in another country
Autonomous expenditure
Expenditure that is not affected by the current level of aggregate income in the economy
Planned aggregate expenditure (PAE)
The level of aggregate expenditure that consists of consumption, planned investment, government spending, and net exports
Planned aggregate expenditure curve
Planned aggregate expenditure as a function of actual aggregate expenditure, holding all other factors constant
Keynesian equilibrium
A situation in which planned aggregate expenditure is equal to the actual aggregate expenditure
Equilibrium aggregate expenditure
The level of aggregate expenditure where unplanned investment is equal to zero, or, equivalently, where planned aggregate expenditure is equal to actual aggregate expenditure
Recessionary output gap
Occurs when equilibrium aggregate expenditure is below the level needed for full employment
Inflationary output gap
Occurs when equilibrium aggregate expenditure is above the level needed for full employment
Multiplier effect
The increase in consumer spending that occurs when spending by one person causes others to spend more, too, increasing the impact of the initial spending on to economy
Expenditure multiplier
The factor by which output increases in response to an initial change in aggregate expenditure
