Chapter 27: Basic Macroeconomic Relationships

Marginal propensity

________ to save- The fraction of any change in income saved.

Movement

________ b /w points on consumption schedule= Change in amount consumed.

Household expectations

________ about future prices and income may affect current spending and saving.

Multiplier

________- Ratio of a change in GDP to the initial change in spending.

Average propensity

________ to save- The fraction of total income that is saved.

schedule

Saving ________- There is a direct relationship between saving and DI but that saving is a smaller proportion of a small DI than of a large DI.

disposable income

45 degree line- Reference line; the vertical distance between the 45 line and any point on the horizontal axis measures either consumption or ________.

Wealth effect

________- Events sometimes suddenly boost the value of existing wealth.

current consumption

When a household borrows, it can increase ________ beyond what would be possible if its spending were limited to its disposable income.

Marginal propensity

________ to consume- The proportion, or fraction, of any change in income consumed.

Disposable income

________ determines levels of consumption + saving.

Average propensity

________ to consume- The fraction, or percentage, of total income that is consumed.

Multiplier

________= 1 /Marginal Propensity to Spend.

45 degree line

Reference line; the vertical distance between the 45 line and any point on the horizontal axis measures either consumption or disposable income

Consumption schedule

Schedule showing the various amounts that households would plan to consume at each of the various levels of disposable income that might prevail at some specific time

Saving schedule

There is a direct relationship between saving and DI but that saving is a smaller proportion of a small DI than of a large DI

Break-even income

Income level at which households plan to consume their entire incomes

Average propensity to consume

The fraction, or percentage, of total income that is consumed

Average propensity to save

The fraction of total income that is saved

Marginal propensity to consume

The proportion, or fraction, of any change in income consumed

Marginal propensity to save

The fraction of any change in income saved

Wealth effect

Events sometimes suddenly boost the value of existing wealth

Expected rate of return

Anticipated revenue that will be generated

Investment demand curve

Shows the amount of investment forthcoming at each real interest rate

Multiplier

Ratio of a change in GDP to the initial change in spending

45 degree line

Reference line; the vertical distance between the 45 line and any point on the horizontal axis measures either consumption or disposable income

Consumption schedule

Schedule showing the various amounts that households would plan to consume at each of the various levels of disposable income that might prevail at some specific time

Saving schedule

There is a direct relationship between saving and DI but that saving is a smaller proportion of a small DI than of a large DI. If households consume a smaller and smaller proportion of DI as DI increases, then they must be saving a larger and larger proportion.

Break-even income

Income level at which households plan to consume their entire incomes

Average propensity to consume

The fraction, or percentage, of total income that is consumed

Average propensity to save

The fraction of total income that is saved

Marginal propensity to consume

The proportion, or fraction, of any change in income consumed

Marginal propensity to save

The fraction of any change in income saved

Wealth effect

Events sometimes suddenly boost the value of existing wealth. When this happens, households tend to increase their spending and reduce their saving.

Expected rate of return

Anticipated revenue that will be generated

Investment demand curve

Shows the amount of investment forthcoming at each real interest rate

Multiplier

Ratio of a change in GDP to the initial change in spending