5.7: Key Concepts

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Mar 24, 2023
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- 5.6: Exercises for Chapter 6
- 6: What is Money?

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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 (): the change in consumption expenditure caused by a change in income.

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

Induced expenditure (c–m)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 ().

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

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