Macroeconomics
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| Average Propensity to Consume (APC) | The fraction, or percentage, of total income that is consumed.
APC= Consumption/Income
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| Average Propensity to Save (APS) | The fraction of total income that is saved.
APS= Saving/Income
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| Marginal Propensity to Consume (MPC) | The proportion, or fraction, of any change in income consumed.
MPC= Change in Consumption/ Change in Income
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| Marginal Propensity to Save (MPS) | The fraction of any change in income saved.
MPS= Change in Saving/ Change in Income
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| 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
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| 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.
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| Aggregate Demand | The schedule or curve that shows the amount of real output that buyers collectively desire to purchase at each possible price level.
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| Determinants of AD | Consumer Spending
Investment Spending
Government Spending
Net Export Spending
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| Aggregate Supply | The schedule or curve showing the level of real domestic output that firms will produce at each price level.
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| Determinants of AS | Input (resource) Prices
Productivity
Legal-Institutional Environment
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| Expansionary Fiscal Policy | Occurs during a recession. It is an increase in government spending or tax cuts to push the economy out of recession.
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| Contractionary Fiscal Policy | Occurs during demand-pull inflation. It decreases government spending or increases taxes to reduce demand-pull inflation.
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| 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.
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