11.6 KEY TERMS

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.

  1. Multiplier
    Unplanned inventory investment
    Planned aggregate expenditure
    Income–expenditure equilibrium
    Marginal propensity to consume (MPC)
    Income–expenditure equilibrium GDP
    Aggregate consumption function
    Accelerator principle
    Keynesian cross
    Actual investment spending
    Inventory investment
    Marginal propensity to save (MPS)
    Autonomous change in aggregate expenditure
    Individual consumption function
    Planned investment spending
    the increase in consumer spending when disposable income rises by $1. Because consumers normally spend part but not all of an additional dollar of disposable income, MPC is between 0 and 1.
    the investment spending that firms intend to undertake during a given period. Planned investment spending may differ from actual investment spending due to unplanned inventory investment.
    an initial rise or fall in aggregate expenditure at a given level of real GDP.
    the total amount of planned spending in the economy; includes consumer spending and planned investment spending.
    an equation showing how an individual household’s consumer spending varies with the household’s current disposable income.
    the level of real GDP at which real GDP equals planned aggregate expenditure.
    the ratio of total change in real GDP caused by an autonomous change in aggregate expenditure to the size of that autonomous change.
    a situation in which aggregate output, measured by real GDP, is equal to planned aggregate expenditure and firms have no incentive to change output.
    the relationship for the economy as a whole between aggregate current disposable income and aggregate consumer spending.
    a diagram that identifies income–expenditure equilibrium as the point where the planned aggregate expenditure line crosses the 45-degree line.
    unplanned changes in inventories, which occur when actual sales are more or less than businesses expected.
    the proposition that a higher rate of growth in real GDP results in a higher level of planned investment spending, and a lower growth rate in real GDP leads to lower planned investment spending.
    the sum of planned investment spending and unplanned inventory investment.
    the fraction of an additional dollar of disposable income that is saved; MPS is equal to 1 – MPC.
    the value of the change in total inventories held in the economy during a given period. Unlike other types of investment spending, inventory investment can be negative, if inventories fall.
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