Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.
aggregate expenditures consumption saving average propensity to consume average propensity to save marginal propensity to consume marginal propensity to save investment Keynesian macroeconomic equilibrium injections withdrawals multiplier paradox of thrift balanced budget multiplier recessionary gap inflationary gap | In the simple model, the economy is at rest; spending injections (investment) are equal to withdrawals (saving), or I = S, and there are no net inducements for the economy to change the level of output or income. In the full model, all injections of spending must equal all withdrawals at equilibrium: I + G + X = S + T + M The spending reduction necessary (when expanded by the multiplier) to bring an overheated economy back to full employment Consist of consumer spending, business investment spending, government spending, and net foreign spending (exports minus imports): GDP = C + I + G + (X − M) The change in saving associated with a given change in income When investment is positively related to income and households intend to save more, they reduce consumption, income, and output, reducing investment so that the result is that consumers actually end up saving less Increments of spending, including investment, government spending, and exports The percentage of income that is consumed (C/Y) The percentage of income that is saved (S/Y) Equal changes in government spending and taxation (a balanced budget) lead to an equal change in income (the balanced budget multiplier is equal to 1) The increase in aggregate spending needed to bring a depressed economy back to full employment; equal to the GDP gap divided by the multiplier Spending changes alter equilibrium income by the spending change times the multiplier. One person’s spending becomes another’s income, and that second person spends some (the MPC), which becomes income for another person, and so on, until income has changed by 1/(1 − MPC) = 1/MPS. The multiplier operates in both directions Spending by businesses that adds to the productive capacity of the economy. Investment depends on factors such as its rate of return, the level of technology, and business expectations about the economy Spending by individuals and households on both durable goods (e.g., autos, appliances, and electronic equipment) and nondurable goods (e.g., food, clothing, and entertainment) The change in consumption associated with a given change in income The difference between income and consumption; the amount of disposable income not spent Activities that remove spending from the economy, including saving, taxes, and imports |