Module 16-18 Flashcards
The increase in consumer spending when disposable income rises by $1
Marginal propensity to consume (MPC)
The increase in household savings when disposable income rises by $1
Marginal propensity to save (MPS)
An initial rise or fall in aggregate spending that is the cause, not the result, of series of income and spending changes
Autonomous Changes in Aggregate Spending
The ration of the total change in real GDP caused by an autonomous change in aggregate spending to the size of that autonomous change. It indicates the total rise in real GDP that results from each $1 of an initial rise in spending.
Spending multiplier
Shows how a household’s consumer spending varies with the household’s disposable income
Consumption function
The amount of money a household would spend if it had no disposable income
Autonomous Consumer Spending
The relationship for the economy as a whole between aggregate current disposable income and aggregate consumer spending
Aggregate consumption function
Is the investment spending that businesses intend to undertake during a given period
Planned investment spending
Value of the change in total inventories held in the economy during a given period
Inventory investment
(Positive) Occurs when actual sales are lower than businesses expected, leading to unplanned increases in inventories. Sales in excess of expectations result in negative unplanned inventory investment
Unplanned inventory investment
The sum of planned investment spending and unplanned inventory investment
Actual investment spending
Shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world
Aggregate demand curve
The change in consumer spending caused by the altered purchasing power of consumers’ assets
Wealth effect of change in the aggregate price level
The change in investment and consumer spending caused by altered interest rates that result from changes in the demand for money
Interest rate effect of a change in the aggregate price level
The use of government purchases of goods and services, government transfers, or tax policy to stabilize the economy
Fiscal policy
the central bank’s use of changes in the quantity of money or the interest rate to stabilize the economy
Monetary policy
Shows the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy
Aggregate supply curve
Dollar amount of the wage paid
Nominal wage
Nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages
Sticky wages
Shows the relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed
Short-run Aggregate supply curve
Shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages were fully flexible
Long-run Aggregate Supply Curve
Level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible
Potential GDP
