Chapter 8

Question 1

aggregate expenditure

Answer 1

total spending in the economy

Question 2

planned aggregate expenditure

Answer 2

consumption (C) + planned investment (I) + government purchases (G) + net exports (NX)

Question 3

macroeconomic equilibrium

Answer 3

when total spending (planned aggregate expenditure) equals total production (GDP)

Question 4

when planned aggregate expenditure is greater than GDP, inventories will ___, and GDP and total employment will ___

Answer 4

decline, increase

Question 5

when planned aggregate expenditure is less than GDP, inventories will ___, and GDP and total employment will ___

Answer 5

increase, decline

Question 6

consumption level variables

Answer 6

current disposable income, household wealth, price level, and interest rate

Question 7

consumption function

Answer 7

the relationship between consumption spending (y-axis) and disposable income (x-axis)

Question 8

autonomous consumption

Answer 8

consumption necessary for life (shelter, food, water) - when disposable income is zero, this comes out of savings

Question 9

marginal propensity to consume (MPC)

Answer 9

change in consumption (△C)/change in disposable income (△YD)

is the slope of the consumption function

Question 10

change in consumption

Answer 10

MPC x change in disposable income

Question 11

disposable income

Answer 11

national income - net taxes

Question 12

national income

Answer 12

consumption + saving + taxes

Question 13

marginal propensity to save (MPS)

Answer 13

change in saving (△S)/change in disposable income (△YD)

Question 14

when taxes are constant, the marginal propensity to consume plus the marginal propensity to save must always equal

Answer 14

one

Question 15

45° line

Answer 15

a line showing the possible points of macroeconomic equilibrium

Question 16

multiplier

Answer 16

1/1 - MPC