Term
| Aggregate Demand-Aggregate Supply Model |
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Definition
| The macro-economic model that uses aggregate demand and aggregate supply to determine and explain the price level and the real domestic output. |
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Definition
| A schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels. |
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Definition
| The tendency for increases in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level. |
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Definition
| The tendency for increases in the price level to increase the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases). |
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Definition
| The inverse relationship between the net exports of a economy and its price level relative to foreign price levels. |
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Term
| Determinants of Aggregate Demand |
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Definition
| Factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve. |
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Definition
| A schedule or curve showing the total quantity of goods and services supplied (produced) at different price levels. |
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Term
| Long-Run Aggregate Supply Curve |
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Definition
| The aggregate supply curve associated with a time period in which input prices (especially nominal wages) are fully responsive to changes in the prices level. |
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| Short-Run Aggregate Supply Curve |
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Definition
| An aggregate supply curve relevant to a time period in which input prices (particularly nominal wages) do not change in response to changes in the price level. |
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Term
| Determinants of Aggregate Supply |
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Definition
| Factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregte supply curve. |
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Term
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Definition
| The price level at which the aggregate demand curve intersects the aggregate supply curve. |
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Term
| Equilibrium Real Domestic Output |
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Definition
| The gross domestic product at which the total quantity of final goods and services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced (the real domestic output); the real domestic output at which the aggregate demand curve intersects the aggregate supply curve. |
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Definition
| A wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover. |
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Term
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Definition
The cost to a firm resulting from changing its prices. The name stems from the cost of restaurants literally printing new menus, but economists use it to refer to the costs of changing nominal prices in general. Might include updating computer systems, re-tagging items, and hiring consultants to develop new pricing strategies as well as the literal costs of printing menus. Because of this expense, firms sometimes do not always change their prices with every change in supply and demand, leading to price stickiness.
Generally, the effect on the firm of small shifts in price (by changes in supply and/or demand, or else because of slight adjustments in monetary policy) are relatively minor compared to the costs of notifying the public of this new information. Therefore, the firm would rather exist in slight disequilbrium than incur the menu costs. |
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