Investment Demand Curve Overview

The portion of households' income remaining after paying taxes and other mandatory charges, available for spending or saving.

The total value of assets owned by households, including savings, investments, property, and other valuable possessions.

The level of optimism or pessimism households have about the future economy, influencing their spending decisions.

The cost of borrowing money, expressed as a percentage of the borrowed amount, influencing borrowing and spending decisions.

Total amount of outstanding loans and debt held by households, impacting their spending power and future income.

Spending by households on goods and services, driven by disposable income, wealth, expectations, and other factors.

The portion of consumption spending that is independent of disposable income, influenced by factors like wealth or savings.

The proportion of each additional dollar of disposable income that is spent on consumption.

The relationship between disposable income (YD) and consumption (C) where consumption is a function of disposable income. C0 represents autonomous consumption, which is the level of consumption when disposable income is zero. MPC is the marginal propensity to consume, which is the change in consumption for every dollar change in disposable income.

The relationship between disposable income (YD) and saving (S) where saving is a function of disposable income. S0 represents autonomous savings, which is the level of saving when disposable income is zero. MPS is the marginal propensity to save, which is the change in saving for every dollar change in disposable income.

The amount of saving that occurs when disposable income is zero. It represents savings that are independent of income, such as the result of past savings, or a transfer payment from a government.

The proportion of an additional dollar of disposable income that is saved.

The relationship between consumption and disposable income, where consumption is a linear function of disposable income.

The relationship between investment spending (I) and the interest rate (r). It is downward sloping because businesses borrow less at higher interest rates.

The relationship between investment spending (I) and national income (Y). It is assumed to be independent of current year's real GDP.

Factors that shift the investment demand curve or the investment schedule.

An increase in profit expectations, technological change, rate of capacity utilization, or business confidence will shift the investment demand curve or schedule upwards. Conversely, a decrease in business taxes, increase in industry regulations, or a decline in the factors mentioned above will shift them downwards.

The amount of capital equipment firms are currently using compared to their potential output.

The total amount of spending in the economy planned by households, businesses, government, and foreigners.

The part of aggregate expenditures that does not depend on the level of income or output. It includes spending on consumption, investment, government purchases, and net exports.

The fraction of each additional dollar of national income that is spent on domestic output. It represents the slope of the AE curve.

A graphical representation of the relationship between aggregate expenditures (AE) and real GDP (Y).

An upward shift in the AE curve, increasing aggregate expenditures at every level of income. This is caused by an increase in autonomous expenditures.

A downward shift in the AE curve, decreasing aggregate expenditures at every level of income. This is caused by a decrease in autonomous expenditures.

A steeper slope of the AE curve, meaning a larger increase in aggregate expenditures for each additional dollar of national income.

A flatter slope of the AE curve, meaning a smaller increase in aggregate expenditures for each additional dollar of national income.

The difference between the AE curve and the consumption curve is that the AE curve includes all components of aggregate expenditures, while the consumption curve only includes household spending.

The model for calculating the AE curve assumes that the general price level is fixed. This means we're ignoring inflation and focusing on the relationship between spending and output.

The situation where total spending in the economy (aggregate expenditure) equals the total value of goods and services produced (real GDP).

The difference between real GDP (Y) and aggregate expenditure (AE). It represents unsold goods or shortages.

Spending that comes from sources outside the circular flow of income, like investment spending.

Spending that leaks out of the circular flow of income, like saving.

In equilibrium, total spending that enters the economy as injections equals the total spending that leaves the economy as leakages.

An economic model where the price level is assumed to be fixed, and output is determined by the level of aggregate expenditure.

The level of output where the economy is in equilibrium. At this point, aggregate expenditure equals real GDP.

The relationship between the total amount of output produced in an economy (Y) and the total amount of planned spending (AE), expressed as Y = AE.

The amount of spending that occurs regardless of the level of income. It includes spending on necessities and investments that are not directly related to income.

The value of the marginal propensity to consume (MPC). It is used in the formula for equilibrium output (Ye). A0 is autonomous spending.

A method for determining the equilibrium output (Ye) by understanding the relationship between aggregate expenditures (AE) and output (Y) from a table.

The graphical representation of the relationship between aggregate expenditures (AE) and output (Y). The point where the AE curve intersects the 45-degree line represents the equilibrium output.