ch 10 Basic Macroeconomic Relationships and GDP Analysis

GDP

Total expenditure in an economy: C + I + G + NX.

C

Consumption; household spending on goods and services.

I

Investment; spending on capital goods for future use.

G

Government spending on goods and services.

NX

Net exports; exports minus imports.

DI

Disposable income; income available for spending or saving.

S

Savings; portion of disposable income not spent.

Dissaving

Consuming more than disposable income allows.

APC

Average propensity to consume; fraction of income consumed.

APS

Average propensity to save; fraction of income saved.

MPC

Marginal propensity to consume; change in consumption per income change.

MPS

Marginal propensity to save; change in saving per income change.

Investment Demand Curve

Graph showing relationship between interest rates and investment.

Expected Rate of Return

Projected profit percentage from an investment.

Real Interest Rate

Nominal rate adjusted for inflation expectations.

Multiplier Effect

Change in GDP resulting from initial spending change.

Multiplier Formula

Multiplier = 1 / (1 - MPC).

Nonincome Determinants

Factors affecting consumption beyond disposable income.

Wealth

Total assets owned by an individual or household.

Borrowing

Taking loans to finance consumption or investment.

Expectations

Future outlook influencing consumer and investor behavior.

Real GDP

GDP adjusted for inflation; reflects true economic output.

Instability of Investment

Investment fluctuations due to various economic factors.

Changes in Investment Demand

Shifts caused by costs, taxes, and expectations.

Variability of Expectations

Fluctuations in consumer and investor confidence.

Economic Domino Effect

Cascading economic impacts from individual spending changes.

Consumption Schedule

Graph showing planned consumption at different income levels.

Saving Schedule

Graph showing planned savings at different income levels.