Aggregate Demand and the Multiplier Model Review

These flashcards cover key terms and concepts discussed in the lecture on Aggregate Demand and the Multiplier Model.

Aggregate Demand (AD)

The total demand for goods and services within an economy at a given overall price level and in a given time period.

Marginal Propensity to Consume (MPC)

The fraction of additional income that a household will spend on consumption rather than saving.

Equilibrium

In the goods market, occurs when aggregate demand equals total output (Y), meaning AD = Y.

Multiplier Effect

The proportional amount by which a change in income will increase the total spending in the economy, leading to a greater overall change in GDP.

Autonomous Consumption

The level of consumption that occurs even when income is zero, consisting of basic needs.

Marginal Propensity to Save (MPS)

The fraction of additional income that is saved rather than spent on consumption.

Leakages

Portions of income that are not spent on domestic consumption, including savings, taxes, and imports, which reduce the size of the multiplier.

Government Expenditures (G)

Government spending that is treated as exogenous in the aggregate demand model, impacting overall AD.

Net Exports (NX)

The value of a country's total exports minus its total imports, which also impacts overall aggregate demand.

Investment (I)

Spending on capital goods that will be used for future production, treated as independent of output in the simple aggregate demand model.