ECON 200 Handout 7 Key Terms

Question 1

Circular Flow

Answer 1

One person’s spending is another person’s income, which finances more spending and therefore, more income, and so on

Question 2

Short-Run Analysis

Answer 2

The analysis of how different events affect an economy before prices have had time to adjust

Question 3

Autonomous Consumption

Answer 3

The component of consumption that is autonomous with respect to income, although not with respect to wealth

Question 4

Exogenous Variables

Answer 4

Variables in the model whose value is assumed in the construction of the model

Question 5

Endogenous Variables

Answer 5

Variables whose value depends on how they are related to the exogenous variables in the model

Question 6

Autonomous Spending

Answer 6

The sum of exogenous injections of spending into the model’s circular flow

Question 7

Short-Run Equilibrium Output

Answer 7

The level of output that persists in a recession

Question 8

Marginal Propensity to Consume (mpc)

Answer 8

Fraction of disposable income that is spent on consumption

Question 9

Marginal Propensity to Import (mpm)

Answer 9

Fraction of disposable income that is spent on imports

Question 10

Autonomous Spending Multiplier or Injections Multiplier

Answer 10

“Multiplies” the autonomous spending to produce Y* (equilibrium)