AP ECON CH. 27 & 28
Terms in this set (22)
45 degree line
a line along which the value of GDP (measured horizontally) is equal to the value of aggregate expenditures) measured vertically.
a schedule showing the amounts households plan to spend for consumer goods at different levels of disposable income.
a schedule that shows the amounts households plan to save (plan not to spend for consumer goods), at different levels of disposable income.
the level of disposable income at which households plan consume (spend) all their income and save none of it.
average propensity to consume (APC)
fraction (or percentage) of disposable income that households plan to spend for consumer goods and services; consumption divided by disposable income.
average propensity to save (APS)
fraction (or percentage) of disposable income that households save; saving divided by disposable income.
marginal propensity to consume (MPC)
the fraction of any change in disposable income spent for consumer goods; equal to the change in consumption divided by the change in disposable income.
marginal propensity to save (MPS)
the fraction of any change in disposable income that households save; equal to the change in saving divided by change in disposable income.
the tendency for people to increase their consumption spending when the value of their financial and real assets rises and to decrease their consumption spending when the value of those assets falls.
expected rate of return
the increase in profit a firm anticipates it will obtain by purchasing capital (or engaging in research and development); expressed as a percentage of the total cost of the investment (or R&D) activity.
investment demand curve
a curve that shows the amounts of investment demanded by an economy at a series of real interest rates.
the ratio of a change in the equilibrium GDP to the change in investment or in any other component of aggregate expenditures or aggregate demand; the number by which a change in any such component must be multiplied to find the resulting change in the equilibrium GDP.
the amount that firms plan or intend to invest.
a curve or schedule that shows the amounts firms plan to invest at various possible values of real GDP.
aggregate expenditures schedule
a schedule or curve showing the total amount spent for final goods and services at different levels of real GDP.
the GDP at which the total quantity of final goods and services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced (the real domestic output); the real domestic output at which the aggregate demand curve intersects the aggregate supply curve.
(1) a withdrawal of potential spending from the income-expenditures stream via saving, tax payments, or imports; (2) a withdrawal that reduces the lending potential of the banking system.
an addition of spending to the income-expenditure stream: investment, government purchases, and net exports.
unplanned changes in inventories
changes in inventories that firms did not anticipate; changes in inventories that occur because of unexpected increases or decreases of aggregate spending (or of aggregate expenditures).
a tax that is a constant amount (the tax revenue of government is the same) at all levels of GDP.
recessionary expenditure gap
the amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full-employment, noninflationary level.
inflationary expenditure gap
the amount by which the aggregate expenditures schedule must shift downward to decrease the nominal GDP to its full-employment noninflationary level.