| Term | Definition |
|---|
| equilibrium | refers to situation in which neither consumers nor firms have any incentive to change their behavior (they are content to continue as things are) |
| expenditure schedule | shows the relationship between national income (GDP) and total spending |
| induced investment | part of investment spending that rises when GDP rises and falls when GDP falls |
| Y = C + I + G + (X - IM) | condition for equilibrium |
| income-expenditure diagram | plots total real expenditure (on the vertical axis) against real income (on the horizontal axis); also called the 45° line diagram |
| recessionary gap | amount by which the equilibrium level of GDP falls short of potential GDP |
| inflationary gap | amount by which equilibrium real GDP exceeds the full employment level of GDP |
| coordination failure | occurs when party A would like to change his behavior if party B would change hers, and vice versa, and yet the two changes do not take place because the decisions of A and B are not coordinated |
| multiplier | ratio of the change in equilibrium GDP (Y) divided by the original change in spending that causes the change in GDP |
| induced increase in consumption | increase in consumer spending that stems from an increase in consumer incomes; represented on the graph as a movement along a fixed consumption function |
| autonomous increase in consumption | increase in consumer spending without an increase in consumer incomes; represented on a graph as a shift of the entire consumption function |
| aggregate demand curve | downward-sloping relationship displayed when equilibrium real GDP demanded is lower when prices are higher |
| full-employment level of GDP | GDP that would be produced if the labor force were fully employed; potential GDP |
Combine with other sets
Share on Facebook
Share on MySpace