Key Concepts

The total planned (ex ante) expenditure on final goods and services in the economy at a given level of income. In the two-sector model of this chapter it is the sum of planned consumption and …

The total planned output of final goods and services that producers are willing to supply. With a fixed price level and unused resources, whatever is demanded is produced, so aggregate supply equals national income and is …

The level of income (output) at which ex ante aggregate demand exactly equals ex ante aggregate supply, so there is no unplanned change in inventories and no t …

The planned or intended value of an economic variable — what households, firms or the government intend to do (plan to consume, invest or supply) before the fact. The theory of income determina …

The actual or realised value of a variable, measured after the fact, as recorded in national income accounting. Ex post consumption and investment are what actually happened, which …

The amount households plan to spend on consumption at a given level of income, described by the consumption function $C = \bar{C} + cY$ — as opposed to the consumption actua …

The fraction of an additional unit of income that households plan to spend on consumption, $c = \dfrac{\Delta C}{\Delta Y}$. It is the slope of the consumption func …

The amount producers plan to add to the stock of physical capital and to inventories in a year. In this chapter it is treated as autonomous, $I = \bar{I}$, indepe …

The unplanned accumulation or depletion of stocks that occurs when planned output differs from planned demand. If demand falls short of output, stocks pile up (unintended accumulation); if demand exceeds output, stocks are drawn down. Such unplanned inventory change …

A change in a component of aggregate demand that does not arise from a change in income — for example a change in autonomous consumption $\bar{C}$ or in autonomous investment $\bar{I}$. Such a chang …

A change in one of the parameters of a line. When the intercept changes, the line shifts up or down in parallel; when the slope (here the marginal propensity to consume) changes, the line swings or …

When the price level is fixed and aggregate supply is perfectly elastic at that price, the equilibrium level of aggregate output is determined solely by the level of aggregate demand. This is the central result of the fixe …

The result that if all households try to save a larger proportion of their income, equilibrium income falls and the total value of saving in the economy either stays unchanged or declines — even though e …

The ratio of the total change in equilibrium income to the initial change in autonomous expenditure that caused it. Its value is $\dfrac{1}{1-c} = \dfrac{1}{s}$, where $c$ is the marginal propensity to consume and $s$ the marginal propensity to save; …