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AP MAC unit #3

QuestionAnswer
APC-average propensity to consume The fraction,or percentage, of total income that is consumed. APC=consumption/income
APS-average propensity to save The fraction of total income that is saved. APS=saving/income
MPC-marginal propensity to consume The proportion,or fraction, of any change in income consumed. The ratio of a change in consumption to a change in the income that caused the consumption change: MPC=change in consumption/change in income
MPS-marginal propensity to save The fraction of any change in income saved. The ratio of a change in saving to the change in income that brought it about: MPS=change in saving/change in income
Multiplier Effect A change in a component of total spending leads to a larger change in GDP.Determines how much larger that change will be. It is the ratio of change in GDP to the initial change in spending. multiplier=change in real GDP/initial change in spending
Inflationary Gap The amount by which an economy's aggregate expenditures schedule must shift downward to eliminate demand-pull inflation and still achieve the full-employment GDP.
Aggregate Demand A schedule or curve that shows the amount of real output that buyers collectively desire to purchase at each possible price level.
Determinants of AD(C+I+G+X) 1.change in consumer spending 2.change in invesment spending 3.change in government spending 4.change in net export spending
Aggregate Supply(R.A.P.) A schedule or curve showing the level of real domestic output that firms will produce at each price level.
Determinants of AS 1.change in input prices 2.change in productivity 3.change in leagal-institutional environment
Expansionary Fiscal Policy Uses increases in government spending or tax cuts to push the economy out of a recession.
Contractionary Fiscal Policy Uses decreases in government spending or increases in taxes to reduce demand-pull inflation.
Crowding-out Effect An expansionary fiscal policy may increase the intrest rate and reduce private spending ,thereby weakining or canceling hte stimulus of the expansionary policy.
Created by: nat714
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