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Flashcards in Chapter 12 Deck (52):
1

staglation

combination of high inflation and rising unemployment

2

demand shocks

Short-run economic fluctuations

3

Aggregate demand curve

Shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world

4

Wealth effect of a change in the aggregate price level

The effect on consumer spending caused by the effect of a change in the aggregate price level on the purchasing power of counsumers assets

Aggregate price level up

Consumer spending Down

*leads to downward-sloping aggregate demand curve

5

Interest rate effect of a change in the aggregate price level

The effect on consumer spending and investment spending caused by the effect of a change in the aggregate price level on the purchasing power of conusmers' and firms' money holdings

interest rate up

consumption down

*leads to downward-sloping aggregate demand curve

6

When consumers and firms become more optimsitic

aggregate demand increases

7

When the real value of household assets rises...

aggregate demand increases

8

When the existing stock of physical capital is relatively small....

aggregate demand increases

9

When consumers and firms become more pessimistic

aggregate demand decreases

10

When real value of household assets falls

aggregate demand decreases

11

When existing stock of physical capital is relatively large

aggregate demand decreases

12

When the government increases spending or cuts taxes

aggregate demand increases

13

When the government reduces spending or raises taxes

aggregate demand decreases

14

When the central bank increases the quantity of money

aggregate demand increases

15

When the central bank reduces the quantity of money...

aggregate demand decreases

16

The prime rate

The interest rate banks charge their best customers

17

aggregate supply curve

Shows the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy

18

Profit per unit of output = 

Price per unit of output - production cost per unit of output

19

Wages

Refers to all forms of worker compensation, such as employer-paid health care, and retirement benefits in addition to earnings

20

nominal wage

the dollar amount of the wage paid

21

Sticky wages

Nominal wages that are slow to fall even in the face of high unemployment and slow to rise in the face of labor shortages

22

Perfectly competitive markets

Producers take prices as given

23

Imperfectly competitive markets

Producers have some ability to choose the prices they charge

24

Short-run aggregate supply curve

Shows the relationship between the aggregate price level and quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed

25

average nominal wage

the nominal wage averaged over all workers in the economy

*falls when there is a steep rise in unemployment

26

When commodity prices fall

aggregate supply increases

27

When commodity prices rise

aggregate supply increases

28

When nominal wages fall

aggregate supply increases

29

When nominal wages rise

aggregate supply decreases

30

When workers become more productive

aggregate supply increases

31

When workers become less productive

aggregate supply decreases

32

Changes in the aggregate price level _____________________________

do not change the quantity of aggregate output supplied in the long run

33

Long run

the period of time over which all prices are fully flexible

34

Long-run aggregate supply curve

Shows the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible

35

LRAS is ________

vertical at it's potential output

36

potential output

The level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible

37

AD-AS Model

The aggregate supply curve and aggregate demand curve are used together to analyze economic functions

38

Short-run macroecnomic equilibrium

When quantity of aggregate output supplied  is equal to quantiy demanded

39

Short run equilibrium aggregate price level

The aggregate price level in the short-run macroeconomic equilibrum

price level at Esr, Pe

40

Short-run equilibrium aggregate output

The quantity of aggregate output produced in the short-run macroeconomic equilibrium

Esr, Ye

41

Pe

Short run equilibrium aggregate price level

42

Ye

Short-run equilibrium level of aggregate output

43

Demand shock

An event that shifts the aggregate demand curve

44

stagflation

The combination of inflation and falling aggregate output

45

Long-run macroeconomic equilibrium

When the point of short-run macroeconomic equilibrium is on the long-run aggregate supply curve

46

Recessionary gap

When aggregate output is below potential output

47

In the end, the economy is ____________ in the long run

self-correcting

48

inflationary gap

When aggregate output is above potential output

49

Output gap

The percentage difference between actual aggregate output and potential output

Actual aggregate output - potential output

                   potential output            X100

 

*Tends to go towards zero

50

Economy is self correcting

When shocks to aggregate demand affect aggregate output in the short run, but not the long run

51

Stabilization policy

The use of government policy to reduce the severity of recessions and rein in excessively strong expansions

52