Test 4 Study Guide
Chapter 10 – Aggregate Expenditure Model
-Explain the determination of equilibrium income, outcome, and employment
-The 4 components of spending:
Consumption, Investment, Government Spending, Net
Exports
-Aggregate expenditures = output, leakages = injections
-An increase in spending results in an increase in income
-Equilibrium changes greater than spending changes (multiplier)
-Ways to visualize: graphs, tables, algebra
-If aggregate expenditure is less than output, production must be reduced
Terms:
Investment Schedule – shows the amount of investment forthcoming at each level of GDP
Aggregate Expenditures Schedule – shows the amount (C +I) that will be spent at each
output \income level
Equilibrium GDP – at which the total quantity of produced is equal to quantity of
purchased
Leakage – A withdrawal of potential spending from income via saving, tax payments, or
imports
Injection – An addition of spending to income via investment, government purchases,
exports
Unplanned Changes In Inventories – Changes that firms did not anticipate, change in
aggregate spending
Net Exports – Exports minus imports
Lump-Sum Tax – A constant-amount tax
Recessionary Gap – The amount by which aggregate expenditures falls short of the amount
of expenditures needed for full employment
Inflationary Gap – amount by which the aggregate expenditures schedule must shift
downward to decrease
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Chapter 11 – Aggregate Demand and Supply
-Aggregate Demand is downward sloping
-Aggregate Supply has a positive slope
-Household wealth increases, consumption increase, increase in demand
-Increase in taxes, reduction of consumption, demand decrease
-Determinates of Aggregate Supply
1.
Change in input prices
a.
Domestic resource prices
b.
Prices of imported resources
c.
Market power
2.
Changes in productivity
3.
Change in legal-institutional environment
a.
Business taxes and subsidies
b.
Government regulations
Terms:
Aggregate Demand- A schedule that shows the total quantity demanded at different price
levels
Aggregate Supply – A schedule showing the total quantity of supplied at different price
levels

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- Fall '08
- TOLIN
- Monetary Policy, Public Finance, Federal Reserve System
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