Macroeconomics ECO 210 Final Exam Study Guide

Define: Consumption function.

Define: Marginal propensity to consume (MPC).

Define: Marginal propensity to save (MPS).

Define: Net wealth.

• Net wealth is the total value of all assets owned by an individual or household minus all liabilities or debts owed.

• Net wealth is the total income earned by an individual in a year.

• Net wealth is the amount of cash available at any given time.

• Net wealth is the total value of all debts owed by an individual or household.

Define: Life-cycle model of consumption and saving.

• The life-cycle model of consumption and saving suggests that individuals plan their consumption and savings behaviour over their life-cycle to smooth consumption.

• It states that individuals only save during their retirement years and spend all their income during their working years.

• It proposes that consumption and saving decisions are made randomly without any planning for the future.

• It suggests that individuals increase their consumption every year regardless of their income.

Define: Aggregate expenditure line.

• The aggregate expenditure line shows the total amount of spending in an economy at different levels of income.

• The aggregate expenditure line shows the total amount of savings in an economy at different levels of income.

• The aggregate expenditure line shows the total amount of taxes collected in an economy at different levels of income.

• The aggregate expenditure line shows the total amount of exports in an economy at different levels of income.

Define: Income-expenditure model.

• The income-expenditure model is a macroeconomic model that shows the relationship between total income and total spending in the economy.

• The income-expenditure model is a microeconomic model that explains consumer preferences.

• The income-expenditure model is a financial accounting tool for businesses.

• The income-expenditure model is a model that predicts stock market trends.

Define: Simple spending multiplier.

Define: Nominal wage.

Define: Real wage.

• Real wage is the wage of a worker adjusted for inflation, representing the purchasing power of the income.

• Real wage is the total amount of money a worker earns before taxes.

• Real wage is the wage paid in foreign currency.

• Real wage is the wage received as bonuses only.