EconCh8 - Production minus sales. Desired, or planned,...

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Chapter 8 Aggregate output – The total quantity of foods 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 combined term used to remind you of the exact equality between aggregate output and aggregate income. Saving (S) – The part of its income that a household does not consume in a given period. Distinguished from savings , which is the current stock of the accumulated saving. Identity – Something that is always true. Consumption function – The relationship between consumption and income. Marginal propensity to consume (MPC) – That fraction of change in income that is consumed, or spent. Marginal propensity to save (MPS) – The fraction of a change in income that is saved. Investment – Purchases by firms of new buildings and equipment and additions to inventories, all of which add to firms’ capital stock. Change in inventory
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Unformatted text preview: Production minus sales. Desired, or planned, investment Those additions to capital stock and inventory that are planned by firms. Actual investment The actual amount of investment that takes place; it includes items such as unplanned changed in inventories. Planned aggregate expenditure (AE) The total amount the economy plans to spend in a given period. Equal to consumption plus planned investment AE= C + I Equilibrium Occurs when there is no tendency for change. In the macroeconomic goods market, equilibrium occurs when planned aggregate expenditure is equal to aggregate output. Multiplier The ratio of the change in the equilibrium level of output to a change in some autonomous variable. Autonomous variable A variable that is assumed not to depend on the state of the economythat is, it does not change when the economy changes. MPS = D S D Y MPS = D I D Y Y = D I 1 MPS multiplier 1 MPS multiplier 1 1-MPC...
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