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24 Cards in this Set

  • Front
  • Back
recession
a period of declining real incomes and rising unemployment
3 facts about Economic Fluctuations
1)they are irregular and unpredictable
2) most macroeconomic quantities fluctuate together
3) as output falls, Unemployment rises
classical dichotomy of money
the separation of variables real variables and nominal variables
model of aggregate D and S
the modle that most economists use to explain short run fluctuations in economic activity around its long run trend
aggregate demand curve
a curve that shows the quantity of G and S that households, firms, and the govt want to buy at each price level
aggregate supply curve
a curve that shows the quanity of G and S that firms choose to produce and sell at each price level
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
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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
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why does the AD curve slope downward
1)health effect
2)interest rate effect
3)exchange rate effect
Why would AD curve shift?
consuption
investment
govt purchases
net exports
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
prices of those G&S compared to other prices in the economy
natural rate of output
shows what economy produces when unemployment is at natural rate
when Pincreases, savings become less valuable,
ppl are less wealthy and spend less on consumption
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why does short run AS curve slope upward?
*1) sticky wage theory
2)sticky price theory
3)misperceptions theory
why might AS curve shift
labor
capital
natural resourves
technology
expected price level
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
a period of recession with increasing prices
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
group of sellers that attempt to thwart competition and reduce production to increase prices
increas in P causes real wages to decrease, thus firms hire more and produce more goods, increasing Y
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