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5 Cards in this Set
- Front
- Back
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Say’s Law |
supply creates its own demand. Production creates enough demand to purchase all the goods and services produced. The law is most easily understood in terms of a barter economy, BUT works for any other rationing device-influenced economy as well.Interest rates change such that savings equal investments.prices and wages are flexible. |
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Three states of the economy : |
Real GDP is less than Natural Real GDP - recessionary (contractionary) gap - less than the natural (optimal) level. short-run and aggregate demand intersect to the LEFT of the LRAS - surplus exist in the labor market. Real GDP is greater than Natural Real GDP - inflationary (expansionary) gap - short-run and aggregate demand intersect to the RIGHT of the LRAS - economy is overheated, working 3rd shift. - shortages exists in the labor market. Real GDP is equal to Natural Real GDP - long-run equilibrium |
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Recessionary Gap |
the condition in which the Real GDP that the economy is producing is less than the Natural Real GDP and the unemployment rate is greater than the natural unemployment rate. |
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Inflationary Gap |
the condition in which the Real GDP that the economy is producing is greater that the Natural Real GDP and the unemployment rate is less than the natural unemployment rate. |
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Laissez-faire (self-regulating economy) |
a public policy of not interfering with market activities in the economy. |
