Macroeconomics McGraw Hill chapter 10

45 degree line

a line along which the value of GDP (measured horizontally) is equal to the value of aggregate expenditures (measured vertically)

consumption schedule

a schedule showing the amounts households plan to spend for consumer goods at different levels of disposable income

saving schedule

a schedule that shows the amounts households plan to save (plan not to spend on consumer goods) at different levels of disposable income

break even income

the level of disposable income at which households plan to consumer (spend) all their income and to save none of it

Average propensity to consume

fraction/percentage of disposable income that households plan to spend for consumer goods and services; APC = consumption/disposable income

Average propensity to save

fraction/percentage of disposable income that households plan to save; APS = savings/disposable income

Marginal propensity to consume

the fraction of any change in DI spent for consumer goods; MPC = change in consumption/change in DI

Marginal propensity to save

the fraction of any change in DI that households save; MPS = change in saving/change in DI

wealth effect

the tendency for people to increase their consumption spending when the value f other financial and real assets rises and to decrease their consumption spending when the value of those assets falls

Investment demand curve

a curve that shows the amounts of investment demanded by an economy at a series of real interest rates

multiplier

the ratio of a change in equilibrium GDP to the change in investment or in any other component of aggregate expenditures or aggregate demand; the number by which a change in any such component must be multiplied to find the resulting change in the equilibrium GDP; Multiplier = change in real GDP/initial change in spending