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Aggregate Expenditures Model and Macroeconomic Equilibrium definitions

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  • Aggregate Expenditures
    Total spending in an economy, including consumption, investment, government purchases, and net exports.
  • AE Model
    Framework linking total spending to production, assuming fixed prices and focusing on real GDP.
  • Sticky Prices
    Situation where prices remain unchanged, allowing analysis without price fluctuations.
  • Real GDP
    Measure of production that keeps prices constant, reflecting actual output.
  • Equilibrium
    Point where total spending matches production, ensuring no unintended inventory changes.
  • Consumption
    Spending by households, influenced by disposable income and marginal propensity to consume.
  • Investment
    Constant component of total spending, representing business expenditures on capital.
  • Government Purchases
    Constant spending by the public sector, contributing to total expenditures.
  • Net Exports
    Constant value representing exports minus imports in total spending.
  • Disposable Income
    Income available to households after taxes, determining consumption levels.
  • Marginal Propensity to Consume
    Fraction of additional income spent by households, shaping the slope of the consumption function.
  • Consumption Function
    Linear relationship showing how household spending increases with disposable income.
  • Multiplier Effect
    Process where changes in investment or government spending amplify overall economic output.