Term
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Definition
- The relationship between the quantity of real GDP supplied and the price level when all othe rinfluences on firm's production plans remain the same
- Other things remaining the same, the higher the price level, the greater is the quantity of real GDP supplied and the lower price level, the smaller is the quantity of real GDP supplied
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Term
| What are the factors that affect the quantity of real GDP supplied? |
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Definition
The quantity of real GDP supplied depends on The quantities of capital and human capital and the technolgies they embody The quantities of land and natural resources used The amount of entreprenueral talent available The quantity of labour employed
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Term
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Definition
| The "money wage rate" (W) is short-hand for total money wage costs per production employee, including benefits and payroll taxes |
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Term
How does prices affect the quantity of real GDP supplied? |
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Definition
- Real GDP supplied increases when the price level rises
- Real GDP supplied decreases when the price level falls
- These changes brings a movement along the aggregate supply.
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Term
| Why does the quantity of real GDP supplied increase when the price level rises and decrease when the price level falls? |
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Definition
| A movement in along the AS curve brings a change in the real wage rate (and the money wage rate remains the same). IF the price level rise, the real wage rate falls and if the price level falls, the real wage rate rises |
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Term
| How does firms respond to a change in real wage rate and profit? |
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Definition
- Go out of business or start up in business
- Shut down temporarily or restart production
- Change their output rate
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Term
| When does aggregate supply changes? |
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Definition
- Production Plan changes other than the price level
- Potental GDP Changes
- The money wage rate changes
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Term
How does an increase in potential GDP affects the Aggregate Supply curve? |
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Definition
- An increase in the Potential GDP increases the aggregate supply. It shifts the curve rightward
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Term
| How does an increase in money wage rate decreases aggregate supply? |
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Definition
- A rise in the money wage rate decreases the aggregate supply. It shifts the curve leftward
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Term
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Definition
| The relationship between the quanttity of real GDP demanded and the price level when all other influences on expenditure plans remain the same |
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Term
How does price level affect real GDP? |
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Definition
| The higher the price level, the smaller is the quantity of real GDP demanded and the lower the price level, the greater is the quantity of real GDP demanded |
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Term
Quantity of real GDP demanded |
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Definition
| Is the total amount final goods and services produced in Canada that people, business, governments and foreigners plan to buy |
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Term
| What is the formula to calculate quantity of real GDP demanded? |
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Definition
Y = C + I + G + X - M Y = Quantity of real GDP demanded C = Consumption expenditure I = Investment G = Government Expenditure X = Exports M = Imports |
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Term
A change in price level brings changes in (3) |
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Definition
- The buying power of money
- The real interset rate
- The real prices of exports and imports
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Term
| Change in Aggregate Demand |
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Definition
| A change in any factor that influences expenditure plans other than the price level brings a change in aggregate demand |
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Term
| What are the factors that change aggregate demand? |
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Definition
- Expectations about the future
- Fiscal policy and monetary policy
- The state of the world economy
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Term
What increases Aggregate Demand? |
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Definition
- Expected future income, inflation or profits increase
- The government or Bank of Canada takes steps to increase planned expenditure
- The exchange rate falls or the global economy expands
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Term
| What decreases Aggregate Demand? |
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Definition
- Expected future income, inflation or profits decrease
- The government or Bank of Canada takes steps to decrease planned expenditure
- The exchange rate rises or the global economy contracts
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Term
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Definition
| Changes in taxes, transfer payments and government expenditure on goods and services |
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Term
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Definition
| Changes in the quantity of money and the interest rate |
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Term
| What are the two main influences that the world economy has on Canada? |
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Definition
- Foreign Exchange rate
- Foreign Real income
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Term
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Definition
| Is the amount of foreign currency that you can buy |
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Term
Aggregate Demand Multiplier |
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Definition
| Is an effect that magnifies changes in expenditure plans and brings potentailly large fluctuations in aggregate demand |
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Term
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Definition
| When the quantity of real GDO demanded equals the quantity of real GDP supplied at hte point of intersection of the AD cyrve and the AS curve |
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Term
| Full employment equilibrium |
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Definition
When equilibrium real GDP equals Potential GDP |
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Term
| Above full-employment equilibrium |
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Definition
When equilibriun real GDP exceeds Potential GDP |
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Term
| Below full-employment equilibrium |
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Definition
When potential GDP exceeds equlibrium real GDP |
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Term
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Definition
| A decrease in real GDP that lasts for at least two quarters (six months) |
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Term
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Definition
| A combination of recession (decreasing Real GDP) and inflation (rising price level) |
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Term
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Definition
| A gap that brings a rising price level |
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Term
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Definition
| A gap that brings a falling price level |
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Term
| Explain the influences on aggregate supply? |
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Definition
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Term
| Explain the influences on aggregate demand |
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Definition
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Term
| Explain how aggregate supply and aggregate demand determine real GDP and the price level |
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Definition
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Term
| Explain how changes in aggregate supply and aggregate demand bring economic growth, inflation, and the business cycle |
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Definition
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Term
| What are the other influences that affects the Aggregate Supply curve |
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Definition
1. Money Wage rate
2. Potentiial GDP |
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Term
| How does a change in real wage rate affect a firm's profit |
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Definition
| A change in real wage rate means that the cost of labour changes relative to the revenue than an hour of labour can produce and it changes a firm's profit. A rise in real wage rate cuts into a firm's profit and a fall in the real wage rate boosts a firm's profit. |
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Term
| What happens when money wage rate remains constant and the price level rises? |
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Definition
| The quantity of labour hired increases and the quantity of real GDP supplied increases |
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Term
True or False
Anything that changes Potential GDP changes aggregate supply and shifts the aggregate supply curve |
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Definition
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Term
True or False
A change in the money wage rate changes aggregate supply because it changes firm's costs. |
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Definition
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