Principles of Macroeconomics - Aggregate Expenditure and Equilibrium Output

These flashcards cover key vocabulary and concepts related to aggregate expenditure and equilibrium output in macroeconomics.

Aggregate Output

The total quantity of goods and services produced in an economy in a given period.

Aggregate Income

The total income received by all factors of production in a given period.

Consumption Function

The relationship between consumption and income.

Marginal Propensity to Consume (MPC)

The fraction of a change in income that is consumed or spent.

Marginal Propensity to Save (MPS)

The fraction of a change in income that is saved.

Planned Investment (I)

Those additions to capital stock and inventory that are planned by firms.

Actual Investment

The actual amount of investment that takes place, including unplanned changes in inventories.

Equilibrium

Occurs when there is no tendency for change in the macroeconomic goods market when planned aggregate expenditure is equal to aggregate output.

Planned Aggregate Expenditure (AE)

The total amount the economy plans to spend in a given period, equal to consumption plus planned investment.

Multiplier

The ratio of the change in the equilibrium level of output to a change in some exogenous variable.

Exogenous Variable

A variable that is assumed not to depend on the state of the economy.

Animal Spirits

The feelings of entrepreneurs that can affect planned investment.

Adjustment to Equilibrium

The process by which the economy responds to unplanned changes until it reaches a new equilibrium.

Keynesian Cross

The point at which the planned aggregate expenditure function crosses the aggregate output line in a graph.

Identity

An equation that is always true by definition.

Negative Function of Interest Rate

The relationship indicating that an increase in interest rates generally reduces the level of planned investment.