13 terms

aggregate planned expenditure

equal to planned consumption expenditure plus planned investment plus planned government expenditure on goods and services plus planned exports minus planned imports

disposable income

aggregate income minus taxes plus transfer payments

consumption function

the relationship between consumption expenditure and disposable income other things remaining the same

saving function

the relationship between saving and disposable income other things remaining the same

marginal propensity to consume

the fraction of a change in disposable income that is consumed. the slope of the consumption function

marginal propensity to save

the fraction of change in disposable income that is saved. the slope of the saving function

marginal propensity to import

the fraction of an increase in real gdp that is spent on imports

induced expenditure

consumption expenditure minus imports varies with real gdp

autonomous expenditure

the sum of investment, governement expenditures, and exports do not vary with real gdp

equilibrium expenditure

the level of aggregate expenditure that occurs when aggregate planned expenditure equals real gdp

Multiplier

the amount by which a change in autonomous expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real gdp

wealth effect

a rise in the price level decreases the purchasing power of consumers real weath which decreases their consumption expenditures

substitition effects

a rise in the price level makes purchasing today more expensive relative to the future