2.2 aggregate demand - keywords

aggregate

the sum or total

aggregate demand

the total of all demands or expenditures in the economy at any given price

domestic economy

the economy of a single country

aggregate demand curve

shows the relationship between the price level and equilibrium national income; as the price level rises the equilibrium level of national income falls

consumption

total expenditure by households on goods and services over a period of time

consumption function

the relationship between the consumption of households and the factors which determine it

disposable income

household income over a period of time including state benefits, less direct taxes

marginal propensity to consume (MPC)

the proportion of a change in income which is spent; calculation = change in consumption / change in income

average propensity to consume (APC)

the proportion of total income spent; calculation = total consumption / total income

saving (personal)

the portion of households’ disposable income which is not spent over a period of time

savings function

the relationship between the saving of households and the factors which determine it

marginal propensity to save (MPS)

the proportion of a change in income which is saved; calculation = change in savings / change in income

average propensity to save (APS)

the proportion of a total income which is saved; calculation = total savings / total income

wealth effect

the change in consumption following a change in wealth

investment

the addition to the capital stock of the economy

gross investment

the addition to capital stock, both to replace the existing capital stock which has been used up (depreciation) and the creation of additional capital

net investment

gross investment minus depreciation

depreciation (of the capital stock) or capital consumption

the value of the capital stock which has been used up or worn out

accelerator theory

the theory that the level of investment is related to past changes in income

accelerator coefficient

the capital-output ratio

capital-output ratio

the ratio between the amount of capital needed to produce a given quantity of goods and the level of output

animal spirits

business confidence: the mood of managers and owners of firms about the future of their industry and wider economy

retained profit

profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation

net exports or the net trade balance

exports minus imports

strong pound

when the pound is worth a lot in comparison to other countries

protectionism

an attempt to prevent domestic producers suffering from competition abroad