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AD/AS
Macroeconomics
Question | Answer |
---|---|
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. |