Chapter 23 - Aggregate Expenditure and Equilibrium Output Flashcards
aggregate output
The total quantity of goods and services produced (or supplied) in an economy in a given period.
aggregate income
The total income received by all factors of production in a given period.
aggregate output (income) (Y)
A combined term used to remind you of the exact equality between aggregate output and aggregate income.
consumption function
The relationship between consumption and income.
marginal propensity to consume (MPC)
That fraction of a change in income that is consumed, or spent.
aggregate saving (S)
The part of aggregate income that is not consumed.
identity
Something that is always true.
marginal propensity to save (MPS)
That fraction of a change in income that is saved.
planned investment (I)
Those additions to capital stock and inventory that are planned by firms.
actual investment
The actual amount of investment that takes place; it includes items such as unplanned changes in inventories.
equilibrium
Occurs when there is no tendency for change. In the macroeconomic goods market, equilibrium occurs when planned aggregate expenditure is equal to aggregate output.
planned aggregate expenditure (AE)
The total amount the economy plans to spend in a given period. Equal to consumption plus planned investment:
AE (=–) C+I.
multiplier
The ratio of the change in the equilibrium level of output to a change in some exogenous variable.
exogenous variable
A variable that is assumed not to depend on the state of the economy—that is, it does not change when the economy changes.
S
S (=–) Y-C
