Ap Econonomica Unit 4

Front 1

45 degree line

Back 1

At each point on the line, expenditures equal income.

Front 2

Consumption Schedule

Back 2

A schedule showing the amounts households plan to spend for consumer goods at different levels of disposable income.

Front 3

Saving Schedule

Back 3

A schedule showing the amounts households plan not to spend for consumer goods at different levels of disposable income.

Front 4

Break-even income

Back 4

The level of disosable income at which households plan to consume all their income.

Front 5

Average Propensity to Consume (APC)

Back 5

Fraction of disposable income that households plan to spend for consumer goods and services.

Front 6

Average Propensity to Save (APS)

Back 6

Fraction of disposable income that households plan to save.

Front 7

Marginal Propensity to Consume (MPC)

Back 7

The fraction of any change in disposable income spent for consumer goods.

Front 8

Marginal Propensity to Save (MPS)

Back 8

The fraction of any change in disposable income that households save.

Front 9

Wealth Effect

Back 9

The tendency for pole 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.

Front 10

Expected Rate of Return

Back 10

The increase in profit a firm anticipates it will obtain by purchasing capital (or engaging in R and D)

Front 11

Planned Investment

Back 11

The amount that firms lan or intend to invest.

Front 12

Spending Multiplier

Back 12

The ratio in the equilibrium GDP to the change in any component of aggregate expenditures; the number by which a change in any component of aggregate expenditures must be multiplied to find the resulting change in equilibrium GDP. 1/MPS

Front 13

Tax Multiplier

Back 13

-MPC/MPS

Front 14

Balanced Budget Multiplier

Back 14

1: when governments speding and taxes are changed in the same direction by the same amount.

Front 15

Unplanned Investment

Back 15

Actual investment less planned investment; increases or decreases in the inventories of firms.

Front 16

Unplanned changes in Inventories

Back 16

Changes in inventories that firms did not anticipate; changes in inventories that occur because of unexpected increases or decreases of aggregate spending.

Front 17

Leakages

Back 17

A withdrawal of potential spending from the income-expenditures stream via savings, tax payments, or imports.

Front 18

Injections

Back 18

An addition of spending to the income-expenditures stream: investment, government purchases, and exports.

Front 19

Lump-sum Tax

Back 19

A tax that is a constant amount at all levels of GDP.

Front 20

Recessionary Gap

Back 20

The amount by which the aggregate expenditures schedule must shift upward to increase real GDP to its full-employment level.

Front 21

Inflationary Gap

Back 21

The amount by which the aggregate expenditures schedule must shift downward to decrease the real GDP to its full-employment level