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26 Cards in this Set

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microeconomics
Examines the functioning of individual industries and the behavior of individual decision-making units—business firms and households.
macroeconomics
Deals with the economy as a whole. Macroeconomics focuses on the determinants of total national income, deals with aggregates
such as aggregate consumption and investment, and looks at the overall level of prices instead of individual prices.
aggregate behavior
The behavior of all households and firms together.
sticky prices
Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity
demanded.
Great Depression
The period of severe economic contraction and high unemployment that began in 1929 and continued throughout the 1930s.
Classical Models
Classical economists applied microeconomic models, or “market clearing” models, to economy-wide problems.

Simple classical models failed to explain the prolonged existence of high unemployment during the Great Depression. This provided the impetus for the development of macroeconomics.
John Maynard Keynes
The General Theory of Employment, Interest, and Money.

Much of macroeconomics has roots in Keynes’s work. According to Keynes, it is not prices and wages that determine the level of employment, as classical models had suggested, but instead the level of aggregate demand for goods and services.
fine-tuning
The phrase used by Walter Heller to refer to the government’s role in regulating inflation and unemployment.
stagflation
Occurs when the overall price level rises rapidly (inflation) during periods of recession or high and persistent unemployment (stagnation).
Three of the major concerns of macroeconomics are
■ Inflation

■ Output growth

■ Unemployment
business cycle
The cycle of short-term ups and downs in the economy.
aggregate output
The total quantity of goods and services produced in an economy in a given period.
recession
A period during which aggregate output declines. Conventionally, a period in which aggregate output declines for two
consecutive quarters.
three kinds of policy that the government has used to influence the macroeconomy
1. Fiscal policy

2. Monetary policy

3. Growth or supply-side policies
fiscal policy
Government policies concerning taxes and expenditures (spending).
monetary policy
The tools used by the Federal Reserve to control the quantity of money in the economy.
supply-side policies
Government policies that focus on stimulating aggregate supply instead of aggregate demand.
circular flow
A diagram showing the income received and payments made by each sector of the economy.
transfer payments
Everyone’s expenditures go somewhere. It is impossible to sell something without there
being a buyer, and it is impossible to make a payment without there being a recipient.
Every transaction must have two sides.
Goods-and-Services Market
Firms supply to the goods-and-services market. Households, the government, and firms demand from this market.
Labor Market
In this market, households supply labor, and firms and the government demand labor.
Money Market
Households supply funds to this market in the expectation of earning income, and also demand (borrow) funds from this market.

Firms, government, and the rest of the world also engage in borrowing and lending, coordinated by financial institutions.
aggregate demand
The total demand for goods and services in an economy.
aggregate supply
The total supply of goods and services in an economy.
expansion or boom
The period in the business cycle from a trough up to a peak, during which output and employment rise.
contraction, recession, or slump
The period in the business cycle from a peak down to a trough, during which output and employment fall.