92 ❯
IN THIS CHAPTER
Summary: Having described GDP as the macroeconomic measure of a
nation’s output, we begin to build a model that helps to explain how and why
GDP fluctuates. As the largest component of GDP, we spend some time on
consumption. Investment is also a component of GDP, but because invest-
ment plays an important role in monetary policy, we investigate it as well. The
market for loanable funds combines savings and investment, and is a prelude
to the interaction of interest rates and the role of financial institutions. This
chapter begins to show how changes in spending affect output and employ-
ment through the multiplier process. Discussion of the spending multiplier
previews how policy affects the macroeconomy and leads to the aggregate
demand and supply model in the next chapter.Key Ideas
✪ Consumption and Saving Functions
✪ Investment
✪ Market for Loanable Funds
✪ The Spending Multiplier, Tax Multiplier, and Balanced-Budget MultiplierConsumption, Saving,
Investment, and the Multiplier
KEY IDEA8
CHAPTER