Chapter 8 - Aggregate Expenditure And Output In The Short Run Flashcards
Marginal propensity to consume (MPC)
The slope of the consumption function: the amount by which consumption spending changes when disposable income changes.
Marginal propensity to save (MPS)
The amount by which saving changes when disposable income changes.
Real interest rate
The nominal interest rate minus the inflation rate
Cash flow
The difference between the cash revenues received by firm and the cash spending by the firm.
Inventories
Goods that have been produced but not yet sold
Nominal interest rate
The stated interest rate on the loan
Multiplier
The increase in equilibrium real GDP divided by the increase in autonomous expenditure.
Multiplier effect
The process by which an increase in autonomous expenditure leads to a larger increase in real GDP.
Consumption function
The relationship between consumption spending and disposable income
Aggregated expenditure (AE)
Total spending in the economy: the sun with consumption, planned investment, government purchases, and net exports.
Autonomous expenditure
And expenditure that does not depend on the level of GDP
Liability
Anything owned by a person or firm
Asset
Anything of value owned by a person or a firm.
Aggregate expenditure model
A macro economic model that focusses on the short – run relationship between total spending in real GDP, assuming that the price level is constant.
Aggregate demand (AD) curve
A curve that shows the relationship between the price level and the level of planned aggregate expenditure in the economy, holding constant all other factors that affect aggregate expenditure.
