Aggregate Demand, aggregate supply, equilibrium national income and the multiplier

AD Formula

C + I + G + (X-M)

Equilibrium

A state in which opposing economic forces or influences are balanced.

The Multiplier Effect

Process by which any changes in the components of AD will lead to an even greater change in national output; Initial injection results in a larger eventual rise of GDP.

Multiplier formula

1/(1-MPC)

Marginal propensity to import (MPM)

The proportion of an increase in income spent on imports

Marginal propensity to tax (MPT)

The proportion of additional income that is taxed

Marginal propensity to withdraw (MPW)

A measure of how much of any extra disposable income earned is saved, taxed or spent outside the economy on imports.

Aggregate supply curve

a curve that shows the quantity of goods and services that all firms are willing to produce and sell at each price level

Keynesian Aggregate Supply Curve

An aggregate supply curve that has a flat horizontal section, and upward sloping section and a vertical section. Price Level (PL) on Y axis and Real GDP (Y) on X axis

Multiplier Effect Equation

1/(1-MPC)

Marginal Propensity to Consume (MPC)

The change in consumer spending arising from a change in disposable income, for every extra pound, how much is spent on consumption.

National Income

The total income earned by the factors of production owned by a country's citizens