Module 16-18

Spending Multiplier

The ratio of the total change in real GDP caused by an autonomous change in aggregate spending to the size of the autonomous change.

Marginal Propensity to Consume (MPC)

The increase in consumer spending when disposable income rises by $1, with a value between 0 and 1.

Autonomous Change in Aggregate Spending

An initial rise or fall in aggregate spending that causes, rather than results from, a series of income and spending changes.

Aggregate Demand Curve

A curve that shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, firms, the government, and the rest of the world.

Wealth Effect

The change in consumer spending caused by altered purchasing power of consumers' assets due to changes in the aggregate price level.

Interest Rate Effect

The impact on consumer and investment spending resulting from a change in purchasing power and subsequent changes in interest rates due to fluctuations in the aggregate price level.

Fiscal Policy

The use of government spending, transfers, or tax policy to stabilize the economy.

Monetary Policy

The central bank's use of changes in the quantity of money or the interest rate to stabilize the economy.

Short-Run Aggregate Supply Curve

Shows the relationship between the aggregate price level and the quantity of aggregate output supplied in the short run, where many production costs are considered fixed.

Long-Run Aggregate Supply Curve

Illustrates the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible.