EconCh8 - Chapter 8 Aggregate output The total quantity of...

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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 economy—that 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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