Aggregate Expenditure

Flashcards covering key concepts related to Aggregate Expenditure and macroeconomic equilibrium concepts.

Aggregate Expenditure (AE)

The total amount of spending in the economy, including consumption, planned investment, government purchases, and net exports.

Macroeconomic Equilibrium

Occurs when aggregate expenditure equals total production or GDP.

Marginal Propensity to Consume (MPC)

The slope of the consumption function; the change in consumption divided by the change in disposable income.

Marginal Propensity to Save (MPS)

The change in saving divided by the change in disposable income.

Consumption Function

The relationship between consumption and disposable income.

Autonomous Consumption

Consumption that is independent of income.

Induced Consumption

Consumption that is determined by the level of income.

45° Line Diagram

A graph used to illustrate macroeconomic equilibrium, where planned expenditure is plotted against real national income.

Net Exports (NX)

The difference between a country's exports and imports.

Planned Investment (I)

Spending by businesses on capital goods that will be used for future production.

Government Purchases (G)

Total government spending on goods and services.

Disposable Income (YD)

National income after the deduction of taxes.

Consumption (C)

Total spending by households on goods and services.

Income, Consumption and Saving Equation

Y = C + S + T, where Y is national income, C is consumption, S is saving, and T is net taxes.

Equilibrium on the 45° Line

Points on the 45° line where planned aggregate expenditure equals GDP.

Effects of Price Level on GDP

Changes in the price level can shift the aggregate expenditure and affect the equilibrium GDP.