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Definition
| The total amount that firms and households plan to spend on goods and services at each level of income. |
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Term
| Macroeconomic equilibrium |
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Definition
| Occurs when the desired level of expenditure in the economy exactly equals the level of output produced, and the income earned from that production. |
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Definition
| Based on the relationship between the level of income received by households, and the level of consumption and saving which occurs. |
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Definition
| Plots all the points where equilibrium could occur, as expenditure is equal to income and output. |
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Definition
| Model showing the relationship between the level of income received by households and the level of consumption and saving which occurs. Expressed by the formula C = a + bY. |
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Definition
- consumption increases as income increases
- investment is autonomous of level of income
- no government or overseas sectors
- income can be spent or saved. |
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Definition
| the fraction of the last (marginal) dollar of income which is spent on consumption when income changes. |
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Definition
| the slope of the consumption function, the greater the MPC (closer to 1) the steeper the consumption multiplier. |
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Term
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Definition
| A change in one of the components of aggregate expenditure (ie. C, I, G X-M) will bring about a relatively larger change in the aggregate level of income, output and expenditure. ie. The level of economic activity when a new equilibrium is reached. |
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Term
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Definition
| The more willing people are to spend any extra income they receive the higher the value of the multiplier and the greater the impact of any change in expenditure on the level of AE. |
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Definition
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Term
| Initial increase in investment causes... |
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Definition
| increase in output = decrease in unemployment = increase in income = increase in consumption = increase in demand for g + s = decrease in inventories = increase output... |
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