Macro Economics Chapter 09 Key Words

Question 1

aggregate expenditures-output model

Answer 1

The model that determines the equilibrium level of real GDP by the intersection of the aggregate expenditures and aggregate output (and income) curves.

Question 2

inflationary gap

Answer 2

The amount by which the aggregate expenditures curve must be decreased to achieve full-employment equilibrium.

Question 3

recessionary gap

Answer 3

The amount by which the aggregate expenditures curve must be increas ed to achieve full-employment equilibrium.

Question 4

spending multiplier (SM)

Answer 4

The ratio of the change in real GDP to an initial change in any component of aggregate expenditures, including consumption, investment, government spending, and net exports. As a formula, the spending multiplier equals 1/(1 - MPC) or 1/MPS.

Question 5

tax multiplier

Answer 5

The change in aggregate expenditures (total spending) resulting from an initial change in taxes. As a formula, the tax multiplier equals 1 - spending multiplier.