Principles of Macroeconomics

These flashcards cover key vocabulary terms and concepts from the lecture on the multiplier effect in macroeconomics.

Multiplier

A concept in economics that describes how an initial change in spending leads to a larger change in overall economic output.

Marginal Propensity to Consume (MPC)

The fraction of additional income that a household consumes rather than saves; for example, if MPC is 0.6, the consumer spends 60% of any extra income.

Marginal Propensity to Save (MPS)

The fraction of additional income that a household saves rather than spends; MPS = 1 - MPC.

Autonomous Change in Aggregate Spending

An initial change in spending which leads to a chain reaction of changes in real GDP.

Geometric Series

A series in the form of 1 + x + x^2 + x^3 + … which converges to a sum based on the value of x.

Investment Spending

Expenditures on capital goods that will be used for future production.

Tax Rate (t)

The fraction of any increase in real GDP that is captured by the government in the form of taxes.