AP MAC unit #3
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
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| APC-average propensity to consume | The fraction,or percentage, of total income that is consumed.
APC=consumption/income
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| APS-average propensity to save | The fraction of total income that is saved.
APS=saving/income
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| MPC-marginal propensity to consume | The proportion,or fraction, of any change in income consumed. The ratio of a change in consumption to a change in the income that caused the consumption change:
MPC=change in consumption/change in income
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| MPS-marginal propensity to save | The fraction of any change in income saved. The ratio of a change in saving to the change in income that brought it about:
MPS=change in saving/change in income
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| Multiplier Effect | A change in a component of total spending leads to a larger change in GDP.Determines how much larger that change will be. It is the ratio of change in GDP to the initial change in 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 schedule must shift downward to eliminate demand-pull inflation and still achieve the full-employment GDP.
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| Aggregate Demand | A 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(C+I+G+X) | 1.change in consumer spending
2.change in invesment spending
3.change in government spending
4.change in net export spending
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| Aggregate Supply(R.A.P.) | A 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 | 1.change in input prices
2.change in productivity
3.change in leagal-institutional environment
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| Expansionary Fiscal Policy | Uses increases in government spending or tax cuts to push the economy out of a recession.
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| Contractionary Fiscal Policy | Uses decreases in government spending or increases in taxes to reduce demand-pull inflation.
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| Crowding-out Effect | An expansionary fiscal policy may increase the intrest rate and reduce private spending ,thereby weakining or canceling hte stimulus of the expansionary policy.
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