Macroeconomics 3

Flashcards covering key vocabulary from a macroeconomics lecture on the goods market.

Total Demand

Total demand for goods in an economy.

Consumption (C)

Spending by households on goods and services.

Investment (I)

Spending by firms on new plant and equipment (nonresidential) and new housing (residential).

Government Spending (G)

Spending by the government on goods and services.

Net Exports (X-IM)

The difference between a country's exports and imports.

Inventory Investment

The change in firms' inventories.

Closed Economy

An economy that does not interact with the rest of the world.

Consumption Function

The relationship between consumption and disposable income.

Propensity to Consume (c1)

The proportion of an additional unit of disposable income that is spent on consumption.

Autonomous Consumption (c0)

The level of consumption that would occur if disposable income were zero.

Disposable Income (YD)

Income after taxes.

Endogenous Variables

Variables explained within the model.

Exogenous Variables

Variables not explained within the model; taken as given.

Equilibrium in the Goods Market

Condition in the goods market that requires production to equal demand.

Multiplier Effect

The multiple by which an initial change in autonomous spending is magnified to determine the resulting change in output.

Autonomous Spending

The portion of demand that does not depend on income.

Private Savings (S)

Private savings equal disposable income minus consumption (S = YD - C).

IS Relation

The equilibrium condition in the goods market that investment equals saving (I = S + (T - G)).