Macroeconomics Chapter 8
aggregate output
the total quantity of goods and services produced (or supplied) in an economy in a given period of time.
aggregate income
the total income received by all factors of production in a given period.
aggregate output (income) (Y)
a combined term used to remind you of the exact equality between aggregate output and aggregate income.
consumption function
the relationship between consumption and income.
slope of the consumption function
change in C/
change in Y
change in Y
straight line consumption curve
C= a+bY
marginal propensity to consume (MPC)
the fraction of change in income that is consumed or spent.
aggregate saving (S)
the part of the economy that is not consumed
S= Y-C
S= Y-C
identity
something that is always true by definition
marginal propensity to save (MPS)
the fraction of a change in income that is saved.
in an economy where you can only save or spend
MPC + MPS = 1
planned investment (I)
those additions to capital stock and inventory that are planned by firms.
actual investment
the actual amount of investment that takes place; it includes items such as unplanned changes in inventory.
equilibrium
when planned aggregate expenditure is equal to aggregate output.
planned aggregate expenditure (AE)
the total amount the economy plans to spend in a given period.
saving/ investment approach to equilibrium
If Y= C+ I
then Y can be substituted for C + S and the equilibrium equation will be
then Y can be substituted for C + S and the equilibrium equation will be
C + S= C + I meaning that
S= I
multiplier definition
the ratio of change in the equilibrium level of output to a change in some exogenous variable.
multiplier equations
multiplier= 1 /(MPS)
or because MPS + MPC = 1
multiplier= 1/(1-MPC)