# Macroeconomics Models

## Vocabulary

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
$\text{C}=a+(\text{MPC}\times Y_d)$

### 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
$\text{The}\;\text{Spending}\;\text{Multiplier}=\frac1{1-\;\text{MPC}}$

### 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
$\text{Tax Multiplier}=\frac{-\text{MPC}}{(1-\text{MPC})}$

### 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