theme 2 definitions

Aggregate demand (AD)

Total amount of expenditure on goods and services in an economy AD=C+I+G+(X-M)

Consumption

Total expenditure of households on goods and services over a period of time

Disposable income

Household income over a period of time (including state benefits) once tac has been deducted

Marginal propensity to consume

The proportion of a change in income which is spent on consumption

Wealth effect

The change in consumption following a change in wealth (rising house values)

Investment

Addition to the capital stock of the economy

Government expenditure

Total expenditure by government on goods and services

Exports

Domestic goods and services sold to foreign agents

Imports

Foreign goods and services bought by domestic agents

Aggregate supply (AD)

The total amount of supply of goods and services in an economy

Full capacity

The level of output where no extra production can take in the long run with existing resources. The full capacity level of output for an economy is shown by the classical long run aggregate supply curve.

Spare capacity

an economy has spare capacity when some resources are unemployed