Chapter 14 - Aggregate Supply and Aggregate Demand Flashcards Preview

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Flashcards in Chapter 14 - Aggregate Supply and Aggregate Demand Deck (17):
1

GDP grows about ____ per year

2%

2

GDP fluctuates around (SR or LR trend) known as _____

Sr trend known as business cycles

3

recessions are

falling real incomes and rising unemployment

4

depressions

severe and rare recession

5

3 facts are...

1. irregular + unpredictable
2. most macroeconomic qualities fluctuate together
3. as output falls, UE rises

6

Agg-D curve shows...

Q of G/S households, firms + gov't want to buy at each level

7

Agg-S curve shows

Q of G/S firms produce at each level

8

Why does Agg-D curve slope down? (3)
-(remember Y = C + I + G + NX; G = fixed gov't policy)

incr in P reduces G/S Demand b/c: wealth effect (C falls), IR effect (I falls), exchange rate effect (NX falls)

9

Why would Agg-D curve shift?
examples?

-shift if any event changes C, I, G, or NX (except P)
-examples: boom/crash (C), spending (G), taxes (I), international boom/crash (NX)

10

Agg-S curve vertical b/c?

Y(new) determined by Supply of labour, capital, natural resources, + level of technology. incr in P d/n affect any of these.

11

Why might Agg-S curve shift?
-examples...

any change in determinants of Agg-S curve will shift it.
-example: immigration incr/decr (L), more/less education (K/H), more/less mineral deposits (nat resources), production imporvements (techn advances)

12

Sticky-Wage Theory is...
-if P>P(e) then

wages set by Price expected P(e) so they take a while to adapt.
-then higher revenue, labour cost is lower, so firms increase output and employment.
-higher P causes higher Y = upward slope

13

Sticky Price Theory is...

Prices sticky in SR b/c menu costs, wait to raise prices, so demand for there increase while cheap, so output and employment increase.
-higher P = higher Y = upward slope

14

Misperceptions Theory...

changes in P confuse w/ changes in relative P of their product, so if P rises above P(e), believe only rising so incr output + employment.
-higher P + higher Y = upward slope

15

in the LR P=P(e) b/c

flexible + corrected

16

Stagflation is...

falling output + rising Prices

17

Keyes argued that...
-also said

recessions and depressions arise from inadequate Demand (so policy makers should shift AD).
-LR misleading b/c in LR we're all dead.