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45 Degree Line
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a reference line where each point on the line is when consumption equals disposable income
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Consumption Schedule
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a schedule showing the amounts households plan to spend for consumer goods at different levels of disposable income.
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Saving Schedule
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a schedule that shows the amounts households plan to save (plan not to spend for consumer goods), at different levels of disposable income.
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Break-Even Income
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the level of disposable income at which households plan to consume (spend) all their income and to save none of it; also, in an income transfer program, the level of earned income at which subsidy payments become zero.
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Average Propensity to Consume (APC)
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fraction (or percentage) of disposable income that households plan to spend for consumer goods and service; consumption divided by disposable income.
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Average Propensity to Save (APS)
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fraction (or percentage) of disposable income that households save; saving divided by disposable income.
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Marginal Propensity to Consume (MPC)
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The fraction of any change in disposable income spend for consumer goods; equal to the change in consumption divided by the change in disposable income.
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Marginal Propensity to Save (MPS)
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the fraction of any change in disposable income that households save; equal to the change in saving divided by the change in disposable income.
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Wealth Effect
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the tendency for people to increase their consumption spending when the value of their financial and real assets rises and to decrease their consumption spending when the value of those assets fall.
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Expected Rate of Return
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the increase in profit a firm anticipates it will obtain by purchasing capital (or engaging in research and development); expressed as a percentage of the total cost of the investment (or R&D) activity.
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Investment Demand Curve
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a curve or schedule that shows the amounts firms plan to invest at various possible values of real gross domestic product.
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Multiplier
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the ratio of a change in the equilibrium GDP to the change in investment or in any other component of aggregate expenditures or aggregate demand; the number by which a change in any component of aggregate expenditures or aggregate demand must be multiplied to find the resulting change in the equilibrium GDP.
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Planned Investment
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the amount that firms plan or intend to invest.
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Investment Schedule
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a curve or schedule that shows the amounts firms plan to invest at various possible values of real gross domestic product.
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Aggregate Expenditures Schedule
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a schedule or curve showing the total amount spent for final goods and services at different levels of real GDP
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Equilibrium GDP
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the level at which the total quantity of goods produced (GDP) equals the total quantity of goods purchased (C + Ig).
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Leakage
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(1) a withdrawal of potential spending from the income-expenditures stream via saving, tax payments, or imports; (2) a withdrawal that reduces the lending of the banking system.
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Injection
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an addition of spending to the income-expenditure stream; investment, government purchases, and net exports.
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Unplanned Changes in Inventories
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changes in inventories that firms did not anticipate; changes in inventories that occur because of unexpected increases or decreases of aggregate spending (of aggregate expenditures)
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Net Exports
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exports minus imports
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Lump-sum Tax
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a tax that is a constant amount (the tax revenue of government is the same) at all levels of GDP.
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Recessionary Gap
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the amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full-employment, non-inflationary level.
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Inflationary Gap
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the amount by which the aggregate expenditures schedule must shift downward to decrease the nominal GDP to its full-employment non-inflationary level.
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