Macroeconomics Models

Vocabulary

business cycle

an interval of expansion and contraction in the economy

consumer spending

the total individual and household purchases of consumer goods and services

consumption

the purchase of goods and services by households

consumption function

the relationship between consumption and disposable income
C=a+(MPC×Yd)C=\;a+(MPC\;\times\;Y_d)

deficit spending

a situation in which expenditures are greater than revenues

disposable income

income remaining after deduction of taxes and other mandatory expenses and addition of government transfers, which households can spend or save

gross domestic product (GDP)

measurement of a country's total economic output

marginal propensity to consume (MPC)

the change in consumer spending that occurs in response to an incremental change in disposable income

marginal propensity to save (MPS)

the change in consumer savings that occurs in response to an incremental change in disposable income

real gross domestic product (real GDP)

the total output of the economy adjusted for inflation

Say's law

an economic law that states when an individual produces a product or service, they get paid for that work, and are then able to use that income to demand other goods and services

spending multiplier

the factor by which gains in total output are greater than the change in spending that caused it
11MPC=Thespendingmultiplier\frac1{1-\;\mathrm{MPC}}=\mathrm{The}\;\mathrm{spending}\;\mathrm{multiplier}

stimulus

use of expansionary fiscal or monetary policy to jumpstart a sluggish or depressed economy or kickstart economic growth

tax multiplier

the effect on the economy from changes in tax policy
MPC(1MPC)=Thetaxmultiplier\frac{-MPC}{(1-MPC)}=\mathrm{The}\;\mathrm{tax}\;\mathrm{multiplier}

unplanned inventory accumulation

an excess of unsold goods caused by an unplanned event

unplanned negative inventory

a shortage of stored materials or goods caused by increased demand