Chapter 11: The Aggregate Expenditures Model

planned investment

The amount that firms plan or intend to invest.

investment schedule

A curve or schedule that shows the amounts that firms plan to invest at various possible values of real gross domestic product (real GDP).

aggregate expenditures schedule

A table of numbers showing the total amount spent on final goods and final services at different levels of real gross domestic product (real GDP).

equilibrium GDP

The gross domestic product at which the total quantity of final goods and final services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced (the real domestic output); the real domestic output at which the aggregate demand curve intersects the aggregate supply curve. Also known as equilibrium real output.

leakage

(1) A withdrawal of potential spending from the income-expenditures stream via saving, tax payments, or imports; (2) a withdrawal that reduces the lending potential of the banking system.

injection

An addition of spending into the income-expenditure stream: any increment to consumption, investment, government purchases, or net exports.

unplanned changes in inventories

Changes in inventories that firms did not anticipate; changes in inventories that occur because of unexpected increases or decreases of aggregate spending (or of aggregate expenditures).

net exports

Exports minus imports.

lump-sum tax

A tax that collects a constant amount (the tax revenue of government is the same) at all levels of GDP.

recessionary expenditure gap

The amount by which aggregate expenditures at the full-employment level of GDP fall short of the amount required to achieve the full-employment level of GDP. In the aggregate expenditures model, the amount by which the aggregate expenditures schedule must shift upward to increase real GDP to its full-employment, noninflationary level.

inflationary expenditure gap

In the aggregate-expenditures model, the amount by which the aggregate expenditures schedule must shift downward to decrease the nominal GDP to its full-employment noninflationary level.