1. Study the overview of macroeconomic markets on the first two pages.

2. Explain why "aggregate output" and "aggregate income" are in principle always equal.

3. What factors does consumer spending depend on? What is the main determinant of consumer spending?

4. What is meant by the "consumption function"?

5. Explain why the graph of the consumption function is upward-sloping.

6. What is meant by the "marginal propensity to consume"?

7. For the consumption function C = 100 + .75Y:
a. explain how the "consumption schedule" is constructed.
b. explain how the graph of the consumption function is constructed.

8. Explain how the saving function is derived from the consumption function, and how the
saving schedule and graph of the saving function are constructed.

9. Explain the difference between planned investment and actual investment.
What assumption is made about planned investment spending in this chapter?

10. What is meant by "planned aggregate expenditure"?

11. What is meant by "equilibrium" in the goods market?

12. Explain how the equilibrium output is determined:
a. from Table 8.1. b. from Figure 8.8. c. algebraically

13. Explain how the equilibrium output is determined according to the savings/investment approach.

14. Explain why there is a tendency for the economy to produce the equilibrium output.

15. How does the equilibrium output change as a result of an increase of investment spending?

16. What is meant by the "multiplier effect"? Explain how the "multiplier effect" is supposed to happen.

17. What is algebraic equation for the "multiplier"?

18. What simplified assumptions is this analysis of the multiplier effect based on?

19. Recommended problems: all.

CHAPTER 1, APPENDIX: "How to Read and Understand Graphs"

1. Review the construction of graphs, especially the meaning of the "slope" of a line.