| autonomous expenditure | the portion of planned aggregate expenditure that is independent of output
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| boom | a particularly strong and protracted expansion
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| consumption function | the relationship between consumption spending and its determinants, in particular, disposable
(after-tax) income.
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| depression | a particularly severe or protracted recession
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| expansion | a period in which the economy is growing at a rate significantly above normal
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| expansory gap | a negative output gap, which occurs when actual output is higher than potential output
(Y is greater than Y*)
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| income expenditure multiplier | the effect of a 1 unit change in autonomous expenditure on short-run equilibrium
output; for example, a multiplier of 5 means that a 10 unit decrease in autonomous expenditure
reduces short-run equilibrium output by 50 units
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| import function | the relationship between imports and income
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| induced expenditure | PAE the portion of planned aggregate expenditure that depends on output Y
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| marginal propensity to consume (MPC) | (or c) the amount by which consumption rises when disposable
income rises by one euro. We assume that 0 is less than c is less than 1.
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| marginal propensity to import | the proportion of a change in income which is spent on imports
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| menu costs | the costs of changing prices
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| natural rate of unemployment, u* | the part of the total unemployment rate that is attributable to frictional
and structural unemployment; equivalently, the unemployment rate that prevails when cyclical unemployment
is zero, so that the economy has neither a recessionary nor an expansionary output gap
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| output gap | Y* – Y the difference between the economy’s potential output and its actual output at a point
in time
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| planned aggregate expenditure (PAE) | total planned spending on final goods and services
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| potential output, Y* (or potential GDP or full-employment output) | the amount of output (real GDP) that
an economy can produce when using its resources, such as capital and labour, at normal rates
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| recession (or contraction) | a period in which the economy is growing at a rate significantly below normal
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| recessionary gap | a positive output gap, which occurs when potential output exceeds actual output (Y* is greater than Y)
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| short-run equilibrium output | the level of output at which output Y equals planned aggregate expenditure
PAE; short-run equilibrium output is the level of output that prevails during the period in which prices are
predetermined
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| wealth effect | the tendency of changes in asset prices to affect households’ wealth and thus their spending on
consumption goods
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