Econ Ch.8 Study help

Econ Ch.8 Study help - -The slope of the Consumption...

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Chapter eight: Aggregate Output: The total quantity of goods and services produced (or supplied) in an economy in a given period. Aggregate Income: The total income received by all factors of production in a given period. Aggregate Output (Income) (Y): a combination term used to remind you of the exact quality b/w aggregate output and aggregate income. Income, consumption, and Savings (Y, C, and S) Saving (S): The part of its income that a household does not consume in a given period. - S = Y - C Explaining Spending Behavior: (pg.153) Determinants of aggregate consumption: - Household income - Household Wealth - Interest Rates - Households’ expectations about the future - The higher your income is, the higher your consumption is likely to be.* Consumption function: The relationship b/w consumption and income (pg. 154) - C = a + bY
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Marginal Propensity to Consume (MPC): Fraction of a change in income that is consumed, or spent
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Unformatted text preview: -The slope of the Consumption function (pg. 155) change in C/change in Y Marginal Propensity to Save (MPS): Fraction of a change in income that is saved-Change in S/change in Y-MPC + MPS = 1 Ex: (pg. 156 and 157) S = Y – C Planned Investment (I) Planned Aggregate Expenditure: Consumption + Planned Investment-AE = C + I (Assuming G and Ex – IM are zero. Normally: AE = C + I + G + (EX-IM) The Multiplier: As seen in the planned Aggregate Expenditure Diagram: (pg. 167) Gov’t Spending Multiplier: 1/1-MPC Tax Decrease Multiplier: MPC/1-MPC Balanced Budget Multiplier: 1 MPC + MPC = 1 1 – MPC = MPS Spending Multiplier: 1/MPS or 1/1-MPC Tax Multiplier: -MPC/MPS or MPC/1-MPC Government Budget Deficit: G-T (Taxes) Leakages and Injections:-Investment (I) = Savings (S)-Injection is Investment and Leakage is Saving-EX + G + I = S + T + IM...
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