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Average Propensity to Consume (APC) The fraction, or percentage, of total income that is consumed. APC= Consumption/Income
Average Propensity to Save (APS) The fraction of total income that is saved. APS= Saving/Income
Marginal Propensity to Consume (MPC) The proportion, or fraction, of any change in income consumed. MPC= Change in Consumption/ Change in Income
Marginal Propensity to Save (MPS) The fraction of any change in income saved. MPS= Change in Saving/ Change in Income
Multiplier Effect A change in spending that ultimately changes output and income by more than the initial change in investment spending. Multiplier= Change in Real GDP/ Initial Change in Spending
Inflationary Gap The amount by which an economy's aggregate expenditures at the full-employment GDP exceed those just necessary to achieve the full-employment GDP.
Aggregate Demand The schedule or curve that shows the amount of real output that buyers collectively desire to purchase at each possible price level.
Determinants of AD Consumer Spending Investment Spending Government Spending Net Export Spending
Aggregate Supply The schedule or curve showing the level of real domestic output that firms will produce at each price level.
Determinants of AS Input (resource) Prices Productivity Legal-Institutional Environment
Expansionary Fiscal Policy Occurs during a recession. It is an increase in government spending or tax cuts to push the economy out of recession.
Contractionary Fiscal Policy Occurs during demand-pull inflation. It decreases government spending or increases taxes to reduce demand-pull inflation.
Crowding-out Effect A potential flaw of fiscal policy. An expansionary fiscal policy may increase the interest rate and reduce private spending, thereby weakening or canceling the stimulus of the expansionary policy.
Created by: lanngoctran