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23 Cards in this Set
- Front
- Back
The components of aggregate demand are:
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Consumption, government spending, net exports, and investment.
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Consumption
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expenditure by consumers on final goods and services
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aggregate demand
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total quantity of output demanded at alternative price levels in a given time
all about spending |
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consumption
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expenditure by consumers on final goods and services
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disposable income
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after tax income
disposable income= consumption + savings Yd= C + S |
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savings
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part of disposable income not spent on current consumption
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average propensity to consume
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total consumption in a given period divided by total disposable income
APC = total consumption ------------------------- total disposable income = C/Yd |
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Marginal propensity to consumer
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fraction of each additional (marginal) dollar of disposable income spent on consumption
"b" in consumption function |
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MPC=
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Change in consumption
---------------------------------------- Change in disposable income |
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Marginal propensity to save
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fraction of each additional dollar of disposable income not spent on consumption
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MPS = 1-MPC
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MPC+MPS=1
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Wealth effect
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change in consumer spending caused by a change in value of owned assets
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consumption function
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relationship indicating the rate of desired consumer spending at various income levels
C= a+bYd |
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Consumption function variables
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C= current consumption
a= autonomous consumption b= marginal propensity to consume Yd= disposable income |
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dissaving
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when consumption is greater than current income
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investment
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expenditures on (production of) new plants, equipment, and structures in a given time, plus changes in business inventory
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full-employment GDP
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value of total output (Real GDP) produced at full-employment
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recession GDP gap
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amount by which the equilibrium GDP fall short of full-employment GDP
low AD |
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Cyclical unemployment
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unemployment due to lack of job vacancies
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inflationary GDP gap
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the amount by which the equilibrium exceeds the full-employment GDP
High AD |
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demand-pull inflation
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increase in the price level due to excessive AD
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determinants of consumption and savings
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expectations
wealth effect credit - interest rates taxes disposable income |
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non-income determinants of consumption that shift the consumption schedule
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expectations
wealth interest rates debt |