Homework 11

Autonomous consumption is that portion of consumption expenditure that is not influenced by

income

Disposable income is

income minus taxes

If prices are fixed, when aggregate planned expenditure exceeds real GDP, then

inventories decrease, signaling firms to increase production and increase real GDP.

Real GDP

is equal to aggregate income.

The slope of the consumption function is

less than 1.

The difference between planned and unplanned spending is ________.

unplanned changes in inventories

In the aggregate expenditure model, when real GDP is greater than aggregate planned expenditure

unplanned inventories are being accumulated.

If aggregate planned expenditure exceeds real GDP

actual inventories decrease below their target.

An increase in real GDP leads to

an increase in aggregate planned expenditure.

There is a movement along the consumption function if there is ________.

an increase in disposable income

The consumption function relates consumption expenditure to

disposable income.

In the very short term, planned investment ________ when GDP changes and planned consumption expenditure ________ when GDP changes.

does not change; changes

In the very short run, the components of aggregate planned expenditure that depend on the level of real GDP are

planned consumption expenditure and planned imports.