Chapter 8 – Basic Macro Economic Relationships Flashcards
45° line
A reference line bisects the 90° angle formed by the two axes, and a long which consumption equals disposable income.
Personal saving
The personal income of households less personal taxes and personal consumption expenditures; disposable income not spent for consumer goods.
Consumption schedule
Schedule showing the amounts household plan to spend for consumer goods at different levels of disposable income.
Saving schedule
A schedule that shows the amount households plan to save a different levels of disposable income.
Dissaving
Spending for consumer goods and services in excess of disposable income; the amount by which personal consumption expenditures exceed disposable income.
Break even income
The level of disposable income at which household plan to consume all the income and to save none of it.
Average propensity to consume or APC
The fraction of disposable income that house was planning to spend for consumer goods and services.
Average propensity to save APS
The fraction of disposable income that household save.
Marginal propensity to consume or MPC
The fraction of any change in disposable income spend for consumer goods.
Marginal propensity to save or MPS
The fraction of any change in disposable income that household safe.
Wealth effect
A downward shift of the savings schedule and an upward shift of the consumption schedule due to higher asset wealth.
Rate of return
The game in net revenue divided by the cost of an investment or an R&D expenditure; expressed as a percentage.
Expected rate of return
The increase in profit affirm anticipates it will obtain by purchasing capital.
Investment demand curve
A curve that shows the amount of investment demanded by and economy of a series of real interest rates.
Gross private domestic investment
Expenditures for newly produced capital goods such as machinery, equipment, tools and buildings and for additions to inventories.
Multiplier effect
The effect on equilibrium GDP of a change in aggregate expenditures are aggregate demand caused by a change in the consumption schedule, investment, government expenditures, or net exports.
Multiplier
The ratio of the change in the GDP to the change in investment or in any other component of aggregate expenditures.
Simple multiplier
The multiplier in an economy in which government collects no net taxes, there are no imports, and investment is independent on the level of income; equal to one divided by the marginal propensity to save.
