Chapter 14 - Aggregate expenditure multiplier

Question 1

Aggregate planned expenditure

Answer 1

is the sum of the spending plans of households, firms, and governments.

Question 2

Consumption function

Answer 2

the relationship between consumption expenditure and disposable income.

Question 3

Marginal propensity to consume

Answer 3

MPC = Change in consumption expenditure / change in disposable income

the fraction of a change in disposable income that is spend on consumption

IE MPC to consume tells us that when disposable income increases by 1 dollar, consumption expenditure increases by 67 cents

Question 4

Other influences on consumption expenditure

Answer 4

Consumption plans are influenced by many factors other than disposable income. The most important influences are:
1) Real interest rate
when real interest fall, expenditure increase
2) wealth
3) expected future income
When either 2 or 3 income decreases, consumption expenditure also decreases

Question 5

Marginal propensity to import

Answer 5

MPI = Change in imports / change in real GDP

IE if a 1 trillion increase in real gdp increases importunes by 0.2 trillion, the the MPI

Question 6

Induced and autonomous expenditure

Answer 6

Aggregate planned expenditure is the sum of induced and autonomous.

Question 7

Induced expenditure

Answer 7

consumption expenditure minus imports

Question 8

Autonomous expenditure

Answer 8

expenditure that does not respond directly to changed in real GDP