aggregate output
total quantity of goods and services produced in an economy in a given period
aggregate income
total income received by all factors of production in a given period
aggregate income (output) (Y)
combined term used to remind you that aggregate income is exactly equal to aggregate output
consumption function
relationship between consumption and income
marginal propensity to consume (MPC)
fraction of a change in income that is spent (consumed)
aggregate savings (S)
part of aggregate income that is not consumed
identity
something that is always true
marginal propensity to save (MPS)
fraction of a change in income that is saved (not consumed)
planned investment (I)
those additions to capital stock and inventory that are planned by firms
actual investment
the actual amount of investment that takes place, including unplanned changes in inventory
equilibrium
occurs when there is no tendancy for change (aggregate expenditure = aggregate output)
planned aggregate expenditure (AE)
the total amount the economy plans to spend in a given period (AE = C + I)
multiplier
the ratio of the change in the equilibrium level of output to a change in some exogenous variable (1/MPS)
exogenous variable
a variable that is assumed not to depend on the state of the economy