# Macro Econ Ch 27

 The flashcards below were created by user lperry25 on FreezingBlue Flashcards. What is disposable income(YD)? YD = Y-T------ or------ YD = C+ SY-GDP------------------- C-ConsumptionT-Taxes------------------ S-saving The relationship between consumption expenditure and disposable income, other things remaining the same, is the Consumption Function The relationship between saving and disposable income, other things remaining the same, is the Saving Function When consumption expenditure exceeds disposable income, saving is negative (dissaving) When consumption expenditure is less thandisposable income, There is saving The marginal propensity to consume (MPC) is the fraction of a change in disposable income spent on consumption.MPC = change in C / change in YD*MPC is the slope of the consumption function* The marginal propensity to save (MPS) is the fraction of a change in disposable income that is saved.MPS = change in S / change in YD*MPS is the slope of the saving function The marginal propensity to importis the fraction of an increase in real GDP spent on imports. Aggregate planned expenditure is planned consumption expenditure plus planned investment plus planned government expenditure plus planned exports minus planned imports. Induced expenditure is Consumption expenditure minus imports, which varies with real GDP. Autonomous expenditure is The sum of investment, government expenditure, and exports, which does not vary with Real GDP. Actual aggregate expenditureis always equal to real GDP Aggregate planned expendituremay differ from actual aggregate expenditure because firms can have inventories that are greater or smaller than planned. Equilibrium expenditureis the level of aggregate expenditure that occurs when aggregate expenditure equals real GDP. Equilibrium occurs at the point at which the aggregate expenditure curve crosses the 45°line The multiplier is the amount by which a change in ______________________ is magnified or multiplied to determine the change in _____________________ autonomous expenditureequilibrium expenditure and real GDP The size of the multiplier is the change in equilibrium expenditure divided by the change in autonomous expenditure.Multiplier = 1/(1-slope of AE curve)Multiplier = Change in Y / Change in autonomous expedniture, A The multiplier in terms of MPS and MPC is multiplier = 1/(1-MPC)1-MPC = MPSMultiplier =1/MPS Both imports and income taxes ____ the size of the multiplier. recude The aggregate expenditure curve is the relationship between aggregate planned expenditure and real GDP The aggregate demand curveis the relationship between The quanitity of real GDP and the price level In the long run the multipier is equal to zero Authorlperry25 ID150712 Card SetMacro Econ Ch 27 DescriptionFinal Updated2012-04-28T19:11:02Z Show Answers