Policies that increase aggregate demand with the intention of increasing real output and employment
Inflation
A persistent or continuing rise in the average price level
Macroeconomic Equilibrium
The level of real output at which aggregate demand equals aggregate supply (AD=AS) alternatively it is the level of income at which withdrawals from the circular flow of income equal injections into the flow
Aggregate Demand
The total planned spending on real output produced within the economy
Economic Shock
An unexpected event hitting the economy. Economic shocks can be demand-side or supply-side shocks (and sometimes both) and unfavourable or favourable
Consumption
Total planned spending by households on consumer goods and services produced within the economy
Rate of Interest
The reward for lending savings to somebody else (e.g. a bank) and the cost of borrowing
Life Cycle Theory of Consumption
A theory that explains consumption and saving in terms of how people expect their incomes to change over the whole of their life cycles
Availability of Credit
Funds available for households and firms to borrow
Credit Crunch
Occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to obtain financing, and leads to a rise in the cost of borrowing
Distribution of Income
The spread of different incomes among individuals and different income groups in the economy
Accelerator
A change in the level of investment in new capital goods is induced by a change in the rate of growth of national income or aggregate demand
Multiplier
The relationship between a change in aggregate demand and the resulting usually larger change in national income
Marginal Propensity to Consume
The fraction of an increase in disposable income that people plan to spend on domestically produced consumer goods