Aggregate Expenditures and Macroeconomics

This set of flashcards covers key terms and concepts related to the aggregate expenditures model and its implications in macroeconomic theory.

Aggregate Expenditures (AE)

The sum of all expenditures made in an economy on consumption, gross investment, government purchases, and net exports.

Aggregate Expenditures Model

A model developed by John Maynard Keynes that relates income and expenditure in an economy.

Real Gross Domestic Product (real GDP, Y)

A measure of the constant dollar value of all final goods and services produced in a country during a fixed period of time.

Consumption (C)

All expenditures made by households on goods and services during a given time period.

Gross Investment (I)

The dollar value of all new capital purchased and the expansion of inventories in an economy during a given time period.

Government Purchases (G)

All final goods and services purchased by federal, state, and local governments.

Net Exports (NX)

The difference between exports and imports, calculated as NX = X - M.

Equilibrium in the Economy

A state where total spending equals total income, or real GDP.

Marginal Propensities to Consume and Save

The percentages of additional income that households are likely to spend or save.

Expenditures Multiplier

A concept that describes how an initial change in spending can lead to a larger change in overall economic activity.

Inflationary Gap

The condition when aggregate demand exceeds aggregate supply at full employment.

Recessionary Gap

The condition when aggregate demand is less than aggregate supply at full employment.

John Maynard Keynes

An economist who developed the aggregate expenditures model and influenced macroeconomic theory.