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.