Chapter 14 Flashcards
Recession
Period of falling incomes and rising unemployment
Depression
Severe recession
Three key facts about economic fluctuations
1: Economic fluctuations are irregular and unpredictable
2: Most macroeconomic quantities fluctuate together
3: As output falls, unemployment rises
Model of aggregate demand and aggregate supply
Model economists use to explain short-run fluctuations in economic activity arounds its long-run trend
Aggregate-demand curve
Curve that shows quantity of goods and services that households, firms, and the government want to buy at each price level
Aggregate-supply curve
Curve that shows the quantity of goods and services that firms choose to produce and sell at each price level
Why might aggregate-demand shift
Changes in:
consumption
investment
government purchases
net exports
Why is the aggregate-supply vertical in the long run
Economy’s production of goods and services depends on its supplies of labour, capital, and natural resources and on the available technology used to turn these factors of production into goods and services
Why might Long-run Aggregate-Supply shift
Natural rate of output
Potential output
Full-employment
changes in labour
changes in capital
changes in natural resources
changes in technological knowledge
Natural rate of ouput
Production of goods and services that an economy achieves in the long run when unemployment is at its normal rate
why does Aggregate-Supply curve slope upwards in the short run
Sticky-wage theory
Sticky-price theory
Misperceptions theory
Stagflation
Period of falling output and rising prices
