Term
| Aggregate demand and aggregate supply model |
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Definition
| A model that explains short-run fluctuations in real GDP and the price level. |
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Term
| Aggregate demand (AD) curve |
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Definition
| A curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government. |
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Term
| Short-run aggregate supply (SRAS) curve |
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Definition
| A curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms. |
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Term
| Shifts of the Aggregate Demand Curve versus Movements along It |
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Definition
If the price level changes but other variables that affect the willingness of households, firms, and the government to spend are unchanged, the economy will move up or down a stationary aggregate demand curve.
If any variable other than the price level changes, the aggregate demand curve will shift. |
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Term
| What are the 3 variables that shift the Aggregate Demand curve? |
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Definition
1. Changes in government policies
2. Changes in the expectations of households and firms
3. Change in foreign variables |
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Term
| Changes in Government Policies: Monetary Policy |
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Definition
The actions the Federal Reserve takes to manage $ supply and interest rates
LOWER interest rates shift the AD curve RIGHT as consumption and investment spending INCREASES
HIGHER interest rates shift the AD curve to the LEFT as consumption and investment spending DECREASE |
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Term
| Changes in Government Policies: Fiscal Policy |
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Definition
Changes in federal taxes and purchases
An INCREASE in government purchases or a DECREASE in taxes shifts the AD curve to the RIGHT
A DECREASE in government purchases or an INCREASE in taxes shifts the AD curve to the LEFT. |
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Term
| What happens to the AD curve if there's an INCREASE in the exchange rate (value of the dollar) relative to foreign currencies? |
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Definition
| The AD curve will shift to the left because imports will rise and exports will fall, reducing net exports |
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Term
| Net exports will _________ if the value of the dollar falls against other currencies. |
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Definition
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Term
| Long-run aggregate supply (LRAS) curve |
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Definition
| A curve that shows the relationship in the long run between the price level and the quantity of real GDP supplied. |
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Term
| In the long run, the level of real GDP is determined by .....? |
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Definition
| the number of workers, the capital stock, and the available technology, none of which are affected by changes in the price level |
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Term
| Long-run aggregate supply (LRAS) curve |
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Definition
A curve that shows the relationship in the long run between the price level and the quantity of real GDP supplied.
(b/c it's not affected by price level, the LRAS curve is vertical) |
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Term
| There are three common explanations for an upward-sloping SRAS curve when workers and firms fail to accurately predict the price level: |
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Definition
Contracts make some wages and prices “sticky.”
Firms are often slow to adjust wages.
Menu costs make some prices sticky. |
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Term
| Shifts of the Short-Run Aggregate Supply Curve versus Movements along It |
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Definition
The short-run aggregate supply curve tells us the short-run relationship between the price level and the quantity of goods and services firms are willing to supply, holding constant all other variables that affect the willingness of firms to supply goods and services.
If the price level changes but other variables are unchanged, the economy will move up or down a stationary aggregate supply curve; if any variable other than the price level changes, the aggregate supply curve will shift. |
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Term
| Variables That Shift the Short-Run Aggregate Supply Curve |
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Definition
1. Increases in the Labor Force and in the Capital Stock
2. Technological Change |
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Term
| What are the 3 most important factors that contributed to the recession of 2007-2009? |
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Definition
1. The end of the housing bubble.
2. The financial crisis
3. The rapid increase in oil prices during 2008 |
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