Final Flashcards
(27 cards)
Define recession
Period of declining real incomes and rising unemployment
Define depression
Recession times 2
What are the three key facts about economic fluctuations
- Economic fluctuations are irregular and unpredictable
- Most economic quantities fluctuate together
- As output falls, unemployment rises
What is the variable most commonly used to monitor short-run changes?
Real GDP
What is the aggregate-demand curve
Curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level
Why the does the demand curve slope down?
- The wealth effect
- Interest-rate effect
- Exchange-rate effect
What is the wealth effect
Decrease in price levels, increases the value of real money
What is the interest-rate effect
Interest rate falls, which stimulates the demand for investment goods
Exchange-rate effect
The currency depreciates which stimulates the demand for net exports
What is the the aggregate demand and aggregate supply model?
A model that most economist use to explain short-run fluctuations in economic activity around its long-run trend
What is the aggregate-supply curve
Curve that shows the quantity of goods and services that firms choose to produce and sell at each price level
What happens if the AD curve shifts right?
Then the equilibrium quantity of output and the price level will rise
What happens if the AD curve shifts left?
Then the equilibrium quantity of output and the price level will fall
When does the AD curve shift right?
When consumption spending, investment spending, government spending, and spending on exports minus imports rise
If these fall, so will the AD curve
Why is the long-run aggregate-supply curve vertical?
No matter the amount of money one might have, it cannot impact the natural level of output
Why would the long aggregate supply curve shift to the right
Productivity increases, such as more workers, better technology, more capital, and the natural resources.
Why might the LRAS shift left
Higher prices for key inputs and/or a decrease in productivity and resources
Why does the aggregate supply curve slope upward in the short run?
- Sticky Wage Theory
- Sticky Price Theory
- Misperceptions Theory
What is the sticky-wage theory
Wages take time to adjust to the economic climate
If production is down then fewer workers and fewer hours
If production is up then they can get more workers
What is the sticky price theory
Prices adjust slowly
What is the misperceptions theory
An unexpected fall in the price level leads suppliers to mistakenly believe that their relative prices have fallen which induces them to reduce production
Define stagflation
A period of falling output and rising prices
What is the theory of liquidity preference
Kenye’s theory that the interest rate adjusts to bring money supply and money demand into balance
When the fed increases money supply, what happens?
Inflation occurs.
