Aggregate Demand
A schedule or curve that shows the total quantity of goods and services demanded at different price levels
Aggregate Supply
A schedule or curve showing the total amount spent for final goods and services at different levels of GDP
Consumption
Household purchases of final goods and services, except for new residences, which count as investment
Inflationary Gap
The amount by which the aggregate expenditures schedule must shift downward to decrease the nominal GDP to its full employment non-inflationary level
Interest Rate
The annual rate at which interest is paid; a percentage of the borrowed amount
Long Run Aggregate Supply
The aggregate supply associated with a time period which input prices (especially nominal wages) are fully responsive to changes in the price level
Macroeconomic equilibrium
occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied at the point of intersection of the AD curve and the AS curve.
Marginal Propensity to Consume (MPC)
The fraction of any change in disposable income spent for consumer goods; equal to the change in consumption divided by the change in disposable income
Marginal Propensity to Save (MPS)
The fraction of any change in disposable income that households save; equal to change in saving divided by the change ins disposable income
Multiplier Effect
The effect on equilibrium GDP of a change in aggregate expenditures or aggregate demand (caused by a change in the consumption schedule, investment, government expenditures or net exports)
Productivity
A measure pf average output or real output per unit of input. For example, the productivity of labor is determined by dividing the real output by hours of work
Recessionary Gap
The amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full employment, noninflationary level
Sticky Wage and Price Model
The short run Aggregate-Supply Curve is sometimes referred to as the "sticky wage and price model", because worker's wage demands take time to adjust to changes in the overall price level, and therefore, in the short run an economy may produce well below
Wealth ( Wealth Effect)
The tendency for people 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.
AD-AS Model
The macroeconomic model that uses aggregate demand and aggregate supply to determine and explain the price level and the real domestic output.
Aggregate Expenditures Schedule
A schedule or curbe showing the total amount spent for final goods and services at different levels of real GDP
Average Propensity to Consume
Fraction of disposable income that households plan to spend for consumer goods and services; consumption divided by disposable income
Average Propensity to Save
Fraction of disposable income that households save; saving divided disposable income
Balanced-Budget multiplier
the extent to which an equal exchange in government spending and taxes changes equilibrium gross domestic product; always has a value of 1 because it is equal to the amount of equal changes in G and T
Consumption function (schedule)
A schedule showing the amounts households plan to spend for consumer goods at different levels of disposable income
Demand Shock
an event that shifts the aggregate demand curve
Determinants of AD
Factors other than price that determine quantities demanded of a good or service.
Determinants of AS
Factors other than price that determine the quantities supplied of a good or service.
Equilibrium GDP
the GDP at which the total quantity of final goods and services purchased is equal to the total quantity of final goods and services produced. The GDP when Aggregate Supply meets Aggregate Demand.
Equilibrium Price Level
The price in a competitive market at which the quantity demanded and the quantity supplied are equal, neither a surplus or a shortage.
Equilibrium Real Output
The Gross domestic product at which the total quantity of final goods and services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced (real domestic output); the real domestic output at which the aggrega
Horizontal Range
The horizontal segment of the aggregate supply curve along which the price level is constant as real domestic output changes.
Inflationary Gap
The amount by which the aggregate expenditures schedule must shift downward to decrease the nominal GDP to its full employment non-inflationary level
Interest Rate Effect
The tendency for increases in the price level to increase for the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases)
Intermediate range
The unsloping segment of the aggregate supply curve lying between the horizontal range and the vertical range
Investment Demand Curve
A curve that shows the amounts of investment demanded by an economy at a series of real interest rates.
Keynesian economics
The macroeconomic generalization that lead to the conclusion that a capitalistic economy is characterized by macroeconomic instability and that fiscal policy and monetary policy can be used to promote full employment, price-level stability and economic gr
Leakage
1. A withdrawal of potential spending from income-expenditures stream via saving, tax payments, or imports.
2. a withdrawal that reduces the lending potential of the banking system.
Marginal Propensity to consume
The fraction of any change in disposable income spent for consumer goods; equal to the change in disposable income.
MP to save
The fraction of any change in disposable income that households save; equal to the change in saving/ change in disposable income.
Recessionary Gap
The amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full-employment, noninflationary level.
Saving Schedule
A schedule that shows the amounts households plan to save (not plan to spend for consumer goods) at different levels of disposable incomes.
Say's Law
The largely discredited macroeconomic generalization that the production of goods and services (supply) creates an equal demand for those goods and services.
Stagflation
Inflation accompanied by stagnation in the rate of growth of output and an increase in employment in the economy; simultaneously increases in price level and unemployment rate.
Supply Shock
An unexpected event that causes the short-run aggregate supply curve to shift; usually causes shortage of a good
Vertical Range
The vertical segment of the aggregate supply curve along which the economy is at full capacity.