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24 Cards in this Set
- Front
- Back
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recession
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a period of declining real incomes and rising unemployment
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3 facts about Economic Fluctuations
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1)they are irregular and unpredictable
2) most macroeconomic quantities fluctuate together 3) as output falls, Unemployment rises |
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classical dichotomy of money
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the separation of variables real variables and nominal variables
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model of aggregate D and S
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the modle that most economists use to explain short run fluctuations in economic activity around its long run trend
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aggregate demand curve
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a curve that shows the quantity of G and S that households, firms, and the govt want to buy at each price level
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aggregate supply curve
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a curve that shows the quanity of G and S that firms choose to produce and sell at each price level
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a decrease in Price level makes consumers wealthier, which in turn ecourages them to spend more
-the increase in consumer spending means larger Qd of G & S nb |
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a decrease in P implys a decrease in interest rate which encourages spending to increase on investment goods
-this increases Qd of G&S nb |
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why does the AD curve slope downward
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1)health effect
2)interest rate effect 3)exchange rate effect |
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Why would AD curve shift?
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consuption
investment govt purchases net exports |
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in the long run, AS curve is vertical where as in the short run it is upward sloping
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in the long run, real GDP depends on supply of labor capital, natural resources and available technology used to turn these factors of production into G&S
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relative prices
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prices of those G&S compared to other prices in the economy
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natural rate of output
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shows what economy produces when unemployment is at natural rate
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when Pincreases, savings become less valuable,
ppl are less wealthy and spend less on consumption nb |
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why does short run AS curve slope upward?
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*1) sticky wage theory
2)sticky price theory 3)misperceptions theory |
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why might AS curve shift
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labor
capital natural resourves technology expected price level |
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in short run, shifts in AD cause fluctuations in economy's output of G&S
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in long run, shifts in AD effect overall P but not GDP
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stagflation
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a period of recession with increasing prices
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shifts in AS can cause stagflation
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policy makers who can influence AS cant effect both effects stumultaneously
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cartel
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group of sellers that attempt to thwart competition and reduce production to increase prices
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increas in P causes real wages to decrease, thus firms hire more and produce more goods, increasing Y
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