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40 Cards in this Set

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Consumption Function
the relationship between consumption and income, other things constant
Marginal propensity to consume
the fraction of a change in income that is spent on consumption; the change in consumption divided by the change in income that caused it
Marginal Propensity to save
the fraction of achage in teh income tha tis saved; the change in saving divided by the change in incom ethat caused it
saving function
the relationship between saving and income, other things constant
net wealth
tha value of a assets minus liabilities
life-cycle model of consumption and saving
young people borrow, middle agers pay off debts and save, and older peole draw down their savings; on average net savings over a lifetime is small
investment function
the relationship between the amount businesses plan to invest and the economoy's income, other things constant
autonomous
a term that means independent; for examply autonomous investmet is ndependent of income
government purchase function
the relationhsip between government purchaes and the economy's income , otehr tings constant
net export function
the relationship between net exports nd the economy's income, other things constant
planned investment
the amount of investment that firms plan to undertake during the year
actual investment
the amount of investment actually undertaken; equals planned investment plus unplanned changes in inventories
aggregat expenditure line
a relationship showing, for a given price level, planned spending at each income, or real GDP; the total of C+I+G+X-M at each income or real GDP
income expenditure model
a relationship between aggregate ncome and aggregate spending that determines, for a given price leve, where the amount people plan to spend equals the amoung produced
simple spending multiplier
the ration of a change in real GDP demended to the intial change in spending tha tbrough tit about; the numerical value of the simple spending multiplier is 1/(1-MPC); called "simple" because only consumption varies with income
DI is equal to what?
DI=Consumption + Savings
Consumption is equal to what?
C=f(y)=a+by
As Disposable Income increases what happens to Consumption?
increases
MPC= what?
change in consupmtion / change in DI
MPC is what for the consumption function?
slope
MPS is what?
change in savings / change in DI
MPS is what for the savings function?
slope
Agg. Expenditure = what?
C+I+G+(X-M)
What causes consumption function to shift?
Net Wealth, Price level, Interest Rate, Expectations
As net wealth increases consumption...
increases
Price level increases, consumption...
decreases
interest rate increases, consumption
decreases
expectations increase, consumption
increases
net wealth = what?
assets - liablilites
What will move a point on the consumption function?
change in income
What 3 things involve investment>?
New factories and equipment
New housing
net change in inventoreis
As interest rate (i) increases, Investment (I) what?
decreases
Investment depends on what?
market interest rate
Investment spending is autonomous of what?
DI
Government purchases function relates to what?
level of income
If transfer payments increase income...
income decreases
Exports dont depend on what?
US Income
Imports vary by level of what?
DI
what are the non-income determinants of net exports?
price level (US)
price level abroad
interest rates
foreign income levels
exchange rates between dollar
Actual investment = what?
planned investment + unplanned change in inventory