Chapter 27 - Aggregate Demand in the Goods and Money Markets Flashcards Preview

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Flashcards in Chapter 27 - Aggregate Demand in the Goods and Money Markets Deck (11):
1

goods market

The market in which goods and services are exchanged and in which the equilibrium level of aggregate output is determined.

2

money market

The market in which financial instruments are exchanged and in which the equilibrium level of the interest rate is determined.

3

expansionary fiscal policy

An increase in government spending or a reduction in net taxes aimed at increasing aggregate output (income) (Y).

4

expansionary monetary policy

An increase in the money supply aimed at increasing aggregate output (income) (Y).

5

crowding-out effect

The tendency for increases in government spending to cause reductions in private investment spending.

6

interest sensitivity or insensitivity of planned investment

The responsiveness of planned investment spending to changes in the interest rate. Interest sensitivity means that planned investment spending changes a great deal in response to changes in the interest rate; interest insensitivity means little or no change in planned investment as a result of changes in the interest rate.

7

contractionary fiscal policy

A decrease in government spending or an increase in net taxes aimed at decreasing aggregate output (income) (Y).

8

contractionary monetary policy

A decrease in the money supply aimed at decreasing aggregate output (income) (Y).

9

policy mix

The combination of monetary and fiscal policies in use at a given time.

10

aggregate demand (AD) curve

A curve that shows the negative relationship between aggregate output (income) and the price level. Each point on the AD curve is a point at which both the goods market and the money market are
in equilibrium.

11

real wealth, or real balance, effect

The change in consumption brought about by a change in real wealth that results from a change in the price level.