Definitions Flashcards
Circular flow of income
Shows how firms and households interlink in an economy
Marginal propensity to consume MPC
The proportion of additional income that households devote to consumer expenditure
Marginal propensity to save MPS
The proportion of additional income that households devote to saving
Average propensity to consume APC
The proportion of income that households devote to consumer expenditure
Average propensity to save APS
The proportion of income that households devote to saving
Marginal propensity to withdraw MPW
MPSave + MPTax + MPImport
Multiplier
The process by which any change in a component of AD results in a greater proportional final change in RGDP
Aggregate demand AD
Total demand for goods and services produced in an economy at a given price level at a given time period
Investment
Spending on capital goods
Any man made aid to production
Gross investment
Total capital spending
Net investment
Total capital spending - capital consumption
Trade
Buying and selling goods and services from other countries
Imports
Purchase of goods or services from abroad that leads to an outflow of currency
Exports
Sale of goods or services to buyers from abroad that leads to an inflow of currency
Aggregate supply AS
Total amount that producers in an economy are willing and able to produce at a given price level in a given time period
Short run aggregate supply SRAS
When the prices of the FoP are assumed to not be changing
Long run aggregate supply LRAS
When the prices of the FoP are variable
Macroeconomic equilibrium
Any position in an economy where AD is equal to AS
Circular flow of income
Shows how firms and households interlink in an economy
Marginal propensity to consume MPC
The proportion of additional Y that households devote to consumer expenditure
Marginal propensity to save MPS
The proportion of additional Y that households devote to saving
Average propensity to consume APC
The proportion of Y that households devote to consumer expenditure
Average propensity to save APS
The proportion of Y that households devote to saving
Marginal propensity to withdraw MPW
MPSave + MPImport + MPTax
Multiplier
The process by which any change in a component of AD results in a greater final change in RGDP
Aggregate demand AD
Total demand for good and services produced in an economy at a given price level at a given time period
Aggregate supply AS
Total amount that producers in an economy are willing and able to produce at a given price level at a given time period
Short run aggregate supply SRAS
When the prices of the FoP are assumed not to be changing
Long run aggregate supply LRAS
When the prices of the FoP are variable
Macroeconomic equilibrium
Condition in the economy in which the quantity of aggregate demand equals the quantity of aggregate supply
