Term
| Aggregate demand and aggregate supply model |
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Definition
| used to explain fluctuations in real GDP and the price level |
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Term
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Definition
| 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 curve |
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Definition
| 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
| Why is the AD curve sloping downward |
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Definition
| because a fall in the price level increases the quantity of real GDP demanded |
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Term
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Definition
| The impact of the price level on consumption |
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Term
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Definition
| The impact of the price level on investment |
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Term
| The International-Trade Effect |
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Definition
| The impact of the price level on net exports. |
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Term
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Definition
| If the price level is the only thing that changes then we will see a shift on the AD curve |
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Term
| Three causes that shift the AD curve |
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Definition
1 Changes in government policies
2 Changes in the expectations of households and firms
3 Changes in foreign variables |
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Term
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Definition
| involves the actions of the Federal Reserves takes to manage the money supply and interest rates and to ensure flow of funds from lenders to borrowers |
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Term
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Definition
| involves changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives |
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Term
| Changes in gov't policies and AD |
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Definition
| any changes in monetary and fiscal policy |
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Term
| Changes in the Expectation of Households and Firms and AD |
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Definition
| If they become more optimistic then more demand. If the reverse then less demand |
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Term
| Changes in foreign variables and AD |
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Definition
| An increase in net exports at every price level will shift the AD curve to the left. |
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Term
| Long Run Aggregate Supply Curve |
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Definition
| shows the relationship in the long run between the price level and the quantity of RGDP supplied |
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Term
| Why are some firms slow to adjust their prices? |
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Definition
1 Contracts make some wages and prices sticky
2 Firms are often slow to adjust wages
3 Menu costs make some prices sticky |
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Term
| 5 Variables that cause the SRAS curve to shift |
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Definition
1 Increase in the labor force and in capital stock
2 Technology change
3 Expected changes in the future price level
4 Adjustments of workers and firms to errors in past expectations about the price level
5 Unexpected changes in the price of an important natural resource |
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Term
| Increase in the labor force and in capital stock and SRAS |
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Definition
| As this grows the firm will be able to supply more goods |
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Term
| Technological change and the SRAS |
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Definition
| as technology gets better more can be produced per unit of capital therefore increasing production |
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Term
| Adjustments of workers and firms to errors in past expectations about the price level and the SRAS |
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Definition
| If they are adjusting to the price level being higher than expected, the SRAS curve shift to the right |
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Term
| Unexpected changes in the price of an important natural resource and SRAS |
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Definition
| if the price of a supply goes up the SRAS curve shifts to the left. |
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Term
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Definition
| an unexpected event that causes the SRAS curve to shift |
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Term
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Definition
| the short run effect of a decline in AD |
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Term
| Adjustment back to equilibrium after recession |
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Definition
| suppliers will start to pay lower wages and supply will increase causing equilibrium |
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Term
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Definition
| the adjustment of the economy back to equilibrium without the aid of the gov't. |
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Term
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Definition
| the combination of inflation and a recession |
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Term
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Definition
| if oil prices increase substantially then the supply curve shifts to the left, causing a temporary recession |
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Term
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Definition
| the short run effect of an increase in AD |
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Term
| Adjustment back to equilibrium after expansion |
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Definition
| since prices will be higher employees will demand higher wages and the SRAS will move to the left drawing it back into equilibrium |
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Term
| Adjustment to Equilibrium after a supply shock |
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Definition
| eventually the workers will begin to except lower wages and the supply curve will fix itself |
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