Term
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Definition
| shows the relationship between the aggregate price level & the quantity of aggregate output demanded by households, businesses, the government, & the rest of the world |
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Term
| wealth effect of a change in the aggregate price level |
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Definition
| the effect on consumer spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers' assets |
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Term
| interest rate effect of a change in the aggregate price level |
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Definition
| the effect on consumer spending & investment spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers' & firms' money holdings |
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Term
| 5 cases where AD increases |
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Definition
1. consumers & firms become more optimistic
2. the real value of household assets rises
3. the existing stock of physical capital is relatively small
4. the government increases spending or cuts taxes
5. the central bank increases the quantity of money |
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Term
| 5 cases where AD decreaes |
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Definition
1. consumers & firms become more pessimistic
2. the real value of household assets falls
3. the existing stock of physical capital is relatively large
4. the government reduces spending or raises taxes
5. the central bank reduces quantity of money |
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Term
| the _____ is downward sloping because of the wealth effect of a change in the aggregate price level & the interest rate effect of a change in the aggregate price level |
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Definition
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Term
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Definition
| shows the relationship between the aggregate price level & the quantity of aggregate output supplied in the economy |
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Term
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Definition
| the dollar amount of the wage paid |
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Term
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Definition
| nominal wages that are slow to fall even in the face of high unemployment & slow to rise even in the face of labor shortages |
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Term
| short-run aggregate supply curve |
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Definition
| shows the relationship between the aggregate price level & the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed |
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Term
| 3 cases where short-run AS curve increases |
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Definition
1. commodity prices fall
2. nominal wages fall
3. workers become more productive |
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Term
| 3 cases where short-run AS curve decreases |
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Definition
1. commodity prices rise
2. nominal wages rise
3. workers become less productive |
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Term
| long-run aggregate supply curve |
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Definition
| shows the relationship between the aggregate price level & the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible |
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Term
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Definition
| the level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible |
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Term
| the _____ illustrates the relationship between the aggregate price level & the quantity of aggregate output supplied |
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Definition
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Term
| the _____ is upward sloping: a higher aggregate price level leads to higher aggregate output given that nominal wages are sticky |
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Definition
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Term
| the _____ is vertical at potential output |
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Definition
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Term
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Definition
| the aggregate supply curve & the aggregate demand curve are used together to analyze economic fluctuations |
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Term
| short-run macroeconomic equilibrium |
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Definition
| when the quantity of aggregate output supplied is equal to the quantity demanded |
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Term
| short-run equilibrium aggregate price level |
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Definition
| the aggregate price level in the short-run macroeconomic equilibrium |
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Term
| short-run equilibrium aggregate output |
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Definition
| the quantity of aggregate output produced in the short-run macroeconomic equilibrium |
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Term
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Definition
| an event that shifts the aggregate demand curve |
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Term
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Definition
| an event that shifts the short-run aggregate supply curve |
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Term
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Definition
| the combination of inflation & falling aggregate output |
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Term
| long-run macroeconomic equilibrium |
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Definition
| when the point of short-run macroeconomic equilibrium is on the long-run AS curve |
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Term
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Definition
| when aggregate output is below potential output |
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Term
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Definition
| when aggregate output is above potential output |
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Term
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Definition
| the percentage difference between actual aggregate output & potential output |
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Term
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Definition
| when shocks to AD affect aggregate output in the short run, but not the long run |
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Term
| the _____ is used to study economic fluctutations |
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Definition
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Term
| _____ occurs at the intersection of the short-run AS & AD curves |
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Definition
| short-run macroeconomic equilibrium |
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Term
| short-run macroeconomic equilibrium determines the _____ & the level of _____ |
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Definition
| short-run equilibrium aggregate price level; short-run equilibrium aggregate output |
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Term
| a _____, a shift of the AD curve, causes the aggregate price level & aggregate output to move in the same direction |
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Definition
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Term
| a _____, a shift of the SRAS curve, causes the aggregate price level & aggregate output to move in opposite directions |
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Definition
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Term
| _____ is the consequence of a negative supply shock |
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Definition
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Term
| a fall in nominal wages occurs in response to a _____, & a rise in nominal wages occurs in response to an _____ |
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Definition
| recessionary gap; inflationary gap |
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Term
| recessionary gap & inflationary gap move the economy to _____, where the AD, SRAS, & LRAS curves intersect |
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Definition
| long-run macroeconomic equilibrium |
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Term
| the _____ always tends toward zero because the economy is self-correcting in the long run |
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Definition
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Term
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Definition
| the use of government policy to reduce the severity of recessions & rein in excessively strong expansions |
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Term
| _____ is the use of fiscal or monetary policy to offset demand shocks |
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Definition
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