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6.6: Key Concepts

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    45931
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    Aggregate demand determines real output (Y) and national income in the short run when prices are constant.

    Aggregate demand: aggregate expenditure (AE) at different price levels when all other conditions are constant.

    GDP(Y): the national accounts measure of the sum of actual expenditure and income in the economy.

    Aggregate expenditure (AE): planned expenditure by business and households.

    Induced expenditure: planned expenditure that is determined by current income and changes when income changes.

    Marginal propensity to consume (img249.png): the change in consumption expenditure caused by a change in income.

    Marginal propensity to import (img250.png): the change in imports caused by a change in income.

    Induced expenditure (cm)Y: planned consumption and imports expenditures that change when income changes.

    Autonomous expenditure (A): planned expenditure that is not determined by current income.

    Aggregate expenditure (AE): the sum of planned induced and autonomous expenditure in the economy.

    Short-run equilibrium output: Aggregate expenditure current output are equal (img251.png).

    Unplanned changes in business inventories: indicators of disequilibrium between planned and actual expenditures – incentives for businesses to adjust levels of employment and output (Y).

    Multiplier img252.png: the ratio of the change in equilibrium income Y to the change in autonomous expenditure A that caused it.


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