vocab

• Aggregate expenditure (AE) function

  The function that relates desired aggregate expenditure to actual national income
• Autonomous expenditure


  Elements of expenditure that do not change systematically with national income
• Average propensity to consume (APC)

  Desired consumption divided by disposable income
• Average propensity to save (APS)

  Desired saving divided by disposable income
• Closed economy


  An economy that has no foreign trade in goods, services, or assets
• Consumption function

  The relationship between desired consumption and all the variables that determine it. In the simplest case, it is the relationship between desired consumption and disposable income
• Desired aggregate expenditure (AE)


  The sum of desired or planned spending on domestic output by households, firms, governments, and foreigners
• Induced expenditure

  Any component of expenditure that is systematically related to national income
• Marginal propensity to consume (MPC)

  The change in desired consumption divided by the change in disposable income that brought it about
• Marginal propensity to save (MPS)


  The change in desired saving divided by the change in disposable income that brought it about
• Marginal propensity to spend


  The change in desired aggregate expenditure on domestic output divided by the change in national income that brought it about
• Saving

  All disposable income that is not spent on consumption
• Simple multiplier

  The ratio of the change in equilibrium national income to the change in autonomous expenditure that brought it about, calculated for a constant price level