50 terms

Macroeconomics chp 11

Marginal propensity to consume (MPC)
increase in consumer spending when disposable income rises by $1
Marginal propensity to save (MPS)
increase in household savings when disposable income rises by $1
autonomous change in aggregate spending
change in desired level of spending by firms, households or govt at a level of real GDP
ratio of total change in real GDP caused by a change in aggregate spending to the size of the change
consumption function
shows how a households consumer spending varies when their disposable income does
aggregate consumption function
relationship between aggregate current disposable income and aggregate consumer spending
planned investment spending
spending that businesses intend to undertake during a given time
accelerator principle
higher growth rate of real GDP = higher planned investment spending (and vice versa)
inventory investment
value of the change of total inventories in economy during giving time
unplanned inventory investment
actual sales are more or less than expected
actual investment spending
sum of planned and unplanned investment spending
planned aggregate spending
total amount of planned spending in the economy
income-expenditure equilibrium
agg output = planned agg spending
income - expenditure equilibrium GDP
real GDP = planned agg spending
Keynesian cross
identitfies income-expenditure equilibrium as point where planned agg spending cross 45 degree line
As the MPC gets larger the ____________ gets larger
the slope of the consumption function =
marginal propensity to consume
downturn in economy = ppl think disposable income will be low =
consumption function will shift down
T/F investment spending fluctuates more than consumer spending?
if expected future GDP rises then...
investment spending increases
slope of consumption function =
slope of marginal propensity to consume
slope of aggregate expenditure line =
marginal propensity to consume
income expenditure equilibrium occurs when:
agg output = planned agg spending
real equilibrium GDP will fall when:
unplanned inventory investment is positive
If aggregate planned expenditures increase in the economy by 100 million, then
real GDP increase more than 100 million
During Great Depression what decreased?
consumption and investment
The larger the value of the MPS...
value of the multiplier will be smaller
T/F past disposable income impacts consumer spending
2/3 of total spending is attributed to:
If housing prices begin to rise nationwide:
increase in consumer spending
decrease in consumer spending, most economists believe:
there was a decrease in investment spending
marginal propensity to save is:
change in saving/change in disposable income
slope of the consumption function equals:
1 - MPS
permanent income hypothesis
spending depends on income people expect not on what they currently have
life cycle income hypothesis
consuming more now and will continue to do so but consumption will smooth out over her lifetime
interest rates and planned investment spending have what kind of relationship?
accelerator principle
higher rate of growth in real GDP will lead to higher planned investment spending
multiplier process assumes that:
economy is operating with sticky aggregate price levels
if unplanned inventory investment is positive then:
agg expenditures on goods/services is less than expected
income expenditure model:
inventories are constantly changing and provide insight into the future state of the economy
after an economic slow down
inventory levels rise
current consumption spending is usually determined by:
household income
the verticle axis on the consumption function is:
autonomous consumption spending
the horozontial axis on the consumption function is:
disposable income
A firm that finances its investment by using its own retained earnings
incurs an opp cost equal to the market interest rate
Why was there a surge in housing starts during the years 2000 to 2006?
low interest rates lead to large increase in construction of homes
slope of agg consumption function is equal to:
output expands when:
planned agg spending > GDP
when GDP > equilibrium
unplanned inventories accumulate
The amount of the change in real GDP arising from an initial change in aggregate spending is equal to
the value of the multiplier times the initial change in aggregate spending.