Economic Equilibrium Analysis Quiz

The consumption function that includes taxes on disposable income. The function is expressed as C = a + b(Y - T), where C is consumption, a is autonomous consumption, b is the marginal propensity to consume, Y is income, and T is taxes.

The saving function that includes taxes on disposable income, expressed as S = -a + (1 - b)(Y - T), where S is saving, a is autonomous consumption, b is the marginal propensity to consume, Y is income, and T is taxes.

The point where planned aggregate expenditure (AE) equals aggregate output (Y) in a macroeconomic goods/services market, indicating no tendency for change.

A model of a closed economy without government intervention, where the only factors affecting national income are consumption (C) and investment (I)

The level of national income where planned spending (AE) equals total output (Y), calculated by equating the total spending equation (AE = C + I) to national income (Y) and solving for Y.

In a two-sector economy, investment (I) is an injection into the spending stream, while saving (S) is a leakage. Equilibrium occurs when injections equal leakages (S = I).

Investment (I) spending in a two-sector economy is an injection into the spending stream, meaning it directly adds to aggregate expenditure.

Saving (S) in a two-sector economy is a leakage from the spending stream, meaning it removes money from circulation.

The total value of all goods and services produced in an economy during a specific period of time.

The total spending in an economy, including consumption (C), investment (I), government spending (G), and net exports (NX).

The level of output where total spending (AE) equals total production (Y).

Spending by households on goods and services, typically a function of disposable income.

Spending by firms on new capital goods, inventory, and research and development.

Spending by the government on goods and services, including infrastructure, defense, and education.

Income remaining after paying taxes, used for consumption and saving.

The relationship between total planned spending (AE) and the level of output/income (Y).

In a three-sector economy, government spending (G) is an injection, increasing the flow of funds, while taxes (T) represent leakages, reducing the flow of funds.

The equilibrium condition in a three-sector economy is achieved when total leakages (savings, S, and taxes, T) equal total injections (investment, I, and government spending, G).

A lump-sum tax is a fixed amount of tax, independent of income.

A proportionate tax is a percentage of income, meaning the tax amount increases as income rises.

The relationship between savings (S) and disposable income (Yd), showing how much people save at different income levels.

A model depicting economic activity as a flow of spending, income, and production throughout the economy.

The level of national income where the aggregate expenditure (AE) curve intersects the 45-degree line.

A graphical representation of total spending in the economy (consumption, investment, government spending).

The relationship between national income and total leakages (savings and taxes).

The relationship between national income and total injections (investment and government spending).

The change in equilibrium income resulting from a change in investment spending, considering lump-sum taxes.

The change in equilibrium income resulting from a change in investment spending, considering proportionate taxes.

The change in equilibrium income resulting from a change in government spending, taking into account lump-sum taxes.

The change in equilibrium income resulting from a change in government spending, taking into account proportionate taxes.

The change in equilibrium income resulting from a change in taxes, showing its impact on production, income, and consumption.

The multiplier for government spending is the same as the multiplier for planned investment, considering both lump-sum and proportionate taxes.

The multiplier for government spending and investment with lump-sum taxes is expressed as 1/(1-MPC), where MPC represents the marginal propensity to consume.

The multiplier for government spending and investment with proportionate taxes is expressed as 1/(1-MPC + MPC.MPT), where MPC is the marginal propensity to consume and MPT is the marginal propensity to tax.

The equilibrium occurs when planned investment and government spending (I+G) intersect with saving and taxes (S+T). This intersection represents the point where the economy is in balance, with total spending matching total output.

The multiplier effect showcases how a change in autonomous expenditure (like investment or government spending) leads to a larger change in equilibrium expenditure and real GDP. This means a small initial change can have a magnified impact on the economy.

The multiplier (K) measures the amplification of the impact of an initial change in autonomous expenditure on equilibrium expenditure and real GDP. It quantifies how much a change in spending is multiplied in the economy.

The multiplier magnifies the change in equilibrium expenditure. This means that a change in autonomous expenditure (like investment or government spending) will lead to a larger change in overall expenditure and real GDP. The multiplier effect is a key concept in understanding how changes in spending can impact economic activity.

The size of the multiplier depends on the marginal propensity to consume (MPC). A higher MPC means people spend a larger portion of any additional income, resulting in a larger multiplier effect. Conversely, a lower MPC means people spend less of their additional income, leading to a smaller multiplier.

The multiplier is calculated as 1 divided by (1 minus the MPC) or 1 divided by MPS (marginal propensity to save). This formula highlights how the level of spending in the economy impacts the multiplier effect.

The planned investment multiplier shows how an initial change in planned investment (I) affects production, income, consumption, and ultimately equilibrium income in the economy. It reflects the impact of investment changes on the overall economic output.

The government spending multiplier measures the impact of changes in government spending (G) on real GDP. It helps understand how government spending influences the economy.

The change in equilibrium income resulting from a lump-sum tax change is calculated as ∆Y = -b * ∆T / (1 - b) where b is the marginal propensity to consume (MPC) and ∆T is the change in taxes.

The change in equilibrium income due to a proportionate tax change is calculated as ∆Y = -b * ∆T / (1 - b + bt) where b is the marginal propensity to consume, t is the marginal propensity to tax, and ∆T is the change in taxes.

The multiplier effect describes how a change in autonomous spending (like government spending or investment) leads to a larger change in equilibrium income due to repeated rounds of spending.