Chap 13 Flashcards
(13 cards)
Aggregate demand
curve to show the negative relationship between the price level and the quantity of real GDP demanded by consumer and gov
the wealth effect
when price levels go up, people spend less money
Interest rate effect
when Price level /\, interest goes /\, the high interest rate reduces spending, reducing the quantity of goods and services
International trade effect
exports \/ b/c they are more expensive and imports will /\ b/c foreign goods are more expensive
Variables that shift the AD curve
- change in gov policies
- changes in expectations of households and firms
- changes in foreign variables
2 types of gov policies
monetary - fed reserve steps in
fiscal - changes in taxes and purchases
What does the long run aggregate supply look like? How does it move?
It is a vertical line |, it shifts right when GDP goes up
How does the short run Aggregate supply work?
as prices go /\, prices rise more slowly
Variables that shift the short run curve:
- Increases in labor force and in capital stock
- technological change
- changes in the production cost;
p costs /\ then SRA <
p costs \/ then SRA >
SR equilibrium
where Short run supply and Aggregate demand intersect
LR equilibrium
where LRAS (supply) and Aggregate demand intersect
Can we guarantee the short run and the long run?
NO just the SR
When U /\
wages go \/
