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A period of time during which real GDP is above potential GDP

Consumption Function

A positively sloped relationship between real consumption spending and real disposable income

Autonomous consumption spending

The part of consumption spending that is independent of income; also the vertical intercept of the consumption function

Marginal propensity to consume

The amount by which consumption spending rises when disposable income rises by one dollar

Consumption-income line

A line showing aggregate consumption spending at each level of income or GDP

Aggregate Expenditure (AE)

The sum of spending by households, business firms, the government, and foreigners on final goods and services produced in the United States

Equilibrium GDP

In the short run, the level of output at which output and aggregate expenditure are equal

Expenditure multiplier

The amount by which equilibrium real GDP changes as a result of a one-dollar change in autonomous consumption, investment spending, government purchases, or net exports

Automatic stabilizer

A feature of the economy that reduces the size of the expenditure multiplier and diminishes the impact of spending changes on real GDP

Countercyclical fiscal policy

A change in government purchases or net taxes designed to reverse or prevent a recession or a boom

Tax multiplier

The amount by which real GDP changes for each one-dollar change in net taxes

National debt

The total amount the federal government still owes to the general public from past borrowing

Government outlays

Total disbursements by the government for purchases, transfer payments, and interest on the debt

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