chapter 8: Principles of Macroeconomics: Aggregate Expenditure and Equilibrium Output

A set of flashcards based on the key concepts of aggregate expenditure and equilibrium output in macroeconomics.

What are the three markets that influence GDP, price level, and employment?

Goods-and-services market, Financial (money) market, Labor market.

What does the term 'aggregate output' refer to?

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

How does the consumption function relate to current income?

The consumption function shows the relationship between consumption and income, indicating that current income plays a key role in determining consumption levels.

What is the marginal propensity to consume (MPC)?

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

What is the relationship between planned investment and actual investment?

Planned investment includes the additions to capital stock and inventory that firms plan, while actual investment includes planned investment plus any unplanned changes in inventories.

What is meant by equilibrium in the macroeconomic goods market?

Equilibrium occurs when planned aggregate expenditure equals aggregate output, with no tendency for change.

How is the multiplier defined in macroeconomics?

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

How does an increase in the interest rate affect planned investment?

An increase in the interest rate is likely to reduce the level of planned investment spending.

What determines the size of the multiplier?

The size of the multiplier depends on the slope of the planned aggregate expenditure line.

What is the equation that describes the equilibrium condition in terms of saving and investment?

Equilibrium occurs when saving equals planned investment (S = I).