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17 Cards in this Set
- Front
- Back
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Currentdisposable income |
income after taxes are paid and government transfers are received. |
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Consumptionfunction |
an equation showinghow an individual household’s consumerspendingvaries with the household’s disposableincome. |
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Aggregate consumption function |
the relationshipforthe economy as a whole betweenaggregate disposable income and aggregate consumer spending. |
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What causes shifts? |
changesin expected future disposable incomechangesin aggregate wealth |
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What does Investment spending do? |
Although much smaller than consumerspending, investment spending tends to drive the booms and busts in the business cycle |
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Plannedinvestment spending |
the investmentspending that businesses intendto undertake during agiven period. the total amount of planned spending inthe economy |
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acceleratorprinciple |
Ahigher rate of growth in real GDPleads to higher planned investment spending.Alower growth rate of real GDPleads to lower planned investment spending. |
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Inventories |
stocks ofgoodsheld to satisfy future sales. |
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Inventoryinvestment |
the valueofthe change in total inventories held inthe economy during a given period. |
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Unplannedinventory investment |
unplanned changes in inventoriesoccurring when actual sales are moreor less than businesses expected |
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Actualinvestment spending |
the sumof planned investment spending andunplanned inventory investment. |
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Assumptions for Income-Expendature model |
Changes inoverall spending lead to changes in aggregate output.The interestrate is fixed.Taxes,government transfers, and government purchases are all zero.Exports andimports are both zero. |
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What happens if firms have overestimated sales and produced too much? |
I-Unplanned will be positive |
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What happens if firms have underestimated sales and produced too much? |
IUnplanned will be negative
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income–expenditure equilibrium |
when aggregate output (real GDP) is equal to planned aggregate spending. |
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Income–expenditureequilibrium GDP |
the level of real GDP at which real GDP equals planned aggregate spending. |
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Keynesian cross |
a diagramthat identifies income–expenditure equilibrium as the point where a plannedaggregate spending line crosses the 45-degree line. |
