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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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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Definition
The impact of the price level on consumption |
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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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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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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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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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