KEY CONCEPTS

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.

Question

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
When investment is positively related to income and households intend to save more, they reduce consumption. Consequently, income and output decrease, reducing investment such that savings actually end up decreasing.
The change in saving associated with a given change in income (ΔS ÷ΔY ).
The increase in aggregate spending needed (when expanded by the multiplier) to bring a depressed economy back to full employment.
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.
Consist of consumer spending, business investment spending, government spending, and net foreign spending (exports minus imports): GDP = C + I + G + (XM).
The change in consumption associated with a given change in income (ΔC ÷ΔY ).
The percentage of income that is consumed (C ÷Y ).
Increments of spending, including investment, government spending, and exports.
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).
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.
The spending reduction necessary (when expanded by the multiplier) to bring an overheated economy back to full employment.
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 difference between income and consumption; the amount of disposable income not spent.
The state of an economy at which all injections equal all withdrawals. There are no pressures pushing the economy to a higher or lower level of output.
Activities that remove spending from the economy, including saving, taxes, and imports.
The percentage of income that is saved (S ÷Y ).
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