automatic stabilizers: - provisions in the law that imply automatic increases in government spending or decreases in taxes when real output declines, autonomous consumption: - consumption spending that is not related to the level of disposable income, autonomous expenditure: - the portion of planned aggregate expenditure that is independent of output, consumption function: - the relationship between consumption spending and its determinants, in particular, disposable income, consumption function equation: - C = C + (MPC)(Y-T), contractionary policies: - government policy actions designed to reduce planned spending and output, disposable income: - the after-tax amount of income that people are able to spend, expansionary policies: - government policy actions intended to increase planned spending and output, expenditure line: - a line showing the relationship between planned aggregate expenditure and output, income-expenditure multiplier (or multiplier): - the effect of a one-unit increase in autonomous expenditure on short-run equilibrium output, induced expenditure: - the portion of planned aggregate expenditure that depends on output Y, marginal propensity to consume (mpc): - the amount by which consumption rises when disposable income rises by $1; we assume that 0 < mpc < 1, menu costs: - the costs of changing prices, planned aggregate expenditure (PAE): - total planned spending on final goods and services, short-run equilibrium output: - the level of output at which output Y equals planned aggregate expenditure PAE; the level of output that prevails during the period in which prices are predetermined, stabilization policies: - government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps, wealth effect: - the tendency of changes in asset prices to affect households’ wealth and thus their consumption spending,

Chapter 13

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