Econ- Exam 3

Front 1

Aggregate Demand

Back 1

a schedule or curve that shows the various amounts of real domestic output that domestic and foreign buyers will desire to purchase at each possible price level

Front 2

Aggregate Supply

Back 2

a schedule or curve showing the level of real domestic output available at each possible price level

Front 3

Efficiency Wages

Back 3

wages that maximize work effort and productivity, minimizing cost

Front 4

Menu Costs

Back 4

the reluctance of firms to cut prices during recessions because of the costs of altering and communicating their price reductions

Front 5

Productivity

Back 5

a measure of average output or real output per unit of input

Front 6

What is the difference between long-run and short-run aggregate supply?

Back 6

long run aggregate supply: supply curve is VERTICAL at the economy's full-employment output.
short-run aggregate supply: curve is UPWARD sloping (SEE CH. 10 pg. 2)

Front 7

What is real-balances effect?

Back 7

when price level falls, the purchasing power of existing financial balances rises, which can increase spending

Front 8

What is interest-rate effect?

Back 8

a decline in price level means lower interest rates that can increase levels of certain types of spending

Front 9

What is the foreign purchases effect?

Back 9

when price level falls, other thins eing equal, US prices will fall relative to foreign prices, which will ten to increase spending on US exports and also decrease import spending in favor of US products that compete with imports

Front 10

What can shift the aggregate demand curve?

Back 10

1. changes in consumer spending
2. changes in investment spending
3. changes in government spending
4. changes in net export spending unrelated to price level

Front 11

What can shift the short-run aggregate supply curve?

Back 11

1. a change in input prices
2. changes in productivity
3. changes in legal-institutional environment

Front 12

What is the slope of the long-run aggregate supply curve and what is the connection to natural unemployment rate?

Back 12

slope= VERTICAL; connection to natural unemployment rate is that ...?

Front 13

Why does the short-run aggregate supply curve become steeper?

Back 13

because shortages of inputs and production bottlenecks will require substantially higher prices to induce firms to produce

Front 14

Long Run aggregate supply

Back 14

the aggregate supply associated with a time period in which input prices are fully responsive to changes in the price level

Front 15

short run aggregate supply

Back 15

relevant to a time period in which input prices do not change in response to changes in the price level

Front 16

philip curve

Back 16

a curve showing the relationship between the unemployment rate and the annual rate of increase in the price level

Front 17

laffer curve

Back 17

a curve relating government tax rates and tax revenues and on on which a particular tax rate maximizes tax revenues

Front 18

stagflation

Back 18

inflation accompanied by stagnation in the rate of growth of output and an increase in unemployment in the economy; simultaneous increases in the inflation rate and unemployment rate

Front 19

supply shock

Back 19

rapid and significant increases in resource costs

Front 20

efficient wages

Back 20

wages that minimize wage costs per unit of output by encouraging greater effort or reducing turnover

Front 21

in terms of aggregate supply, a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the:

Back 21

LONG RUN aggregate supply

Front 22

in the extended analysis of aggregate supply, the long-run aggregate supply curve is:

Back 22

a VERTICAL line at the full emplyment level of real GDP

Front 23

in the extended aggregate demand-aggregate supply model:

Back 23

makes the distinction between the short run and long run aggregate supply curves.

Front 24

one policy dilemma posed by cost-push inflation is that:

Back 24

if government attempts to maintain full employment when there is cost-push inflation an inflationary spiral may occur

Front 25

the traditional philips curve suggests a tradeoff between:

Back 25

output and inflation does not occur over long time periods

Front 26

stagflation refers to:

Back 26

increasing inflation and rising unemployment

Front 27

an adverse aggregate supply shock could result from:

Back 27

stagflation

Front 28

monetarist

Back 28

1. focuses on money supply
2. holds that markets are highly competitive
3. says that a competitve market system gives the economy a high degree of macroeconomic stability

Front 29

rational expectation theory

Back 29

the hypothesis that firms and hoseholds expect monetary and fiscal policies to have certain effects on the economy and take actions that make these policies ineffective

Front 30

macro instability

Back 30

economic instability- ie. great depressions, recessions, inflation

Front 31

velocity

Back 31

the number of times per year that the average dollar in the money supply is spent for final goods and services; nominal GDP divided by the money supply

Front 32

what causes macroeconomic instability?

Back 32

-inappropriate monetary policy, instability of investment, coordination failures
-significant changes in investment spending
-adverse aggregate supply shocks

Front 33

what equation is the basic mainstream view of macroeconomics?

Back 33

C(a)+I(g)+X(n)+G=GDP;
(Aggregate expenditures)= (real output)

Front 34

what is the monetarist view of macroeconomics?

Back 34

-monetarist view: applied to a modern form of classical economics
-money supply is the focus
-monetarism argues that the price and wage flexibility provided by competitive markets cause fluctuations in product and resource prices, rather that output and employment

Front 35

what is velocity of money?

Back 35

the number of times per year the average dollar is spent on final goods and services

Front 36

What is the classical view of aggregate supply curve?

Back 36

the a.s. curve is vertical and is the sole determinant of the level of real output.

Front 37

What is the classical view of aggregate demand?

Back 37

the down-sloping aggregate demand curve is stable and is the sole determinant of the price level

Front 38

What is the real-business view of macroeconomic instability?

Back 38

business fluctutations result from significant changes in technology and resource availability
*macro instability arises on the aggregate supply side of the economy, not the aggregate demand side

Front 39

what is the keynesian view of macroeconomic instability?

Back 39

product prices and wages are downwardly inflexible.
*aggregate supply curve is horizontal up to the full-employment level of output; then it becomes vertical. The aggreagte demand curve is unstable largely because of the colatility of investment spending; such shifts cause either recession or demand-pull inflation

Front 40

what is the classical view of macroeconomic instability?

Back 40

the aggregate supply curve is vertical at the full-employment level of real output, and the aggregate demand curve is stable as long as the money supply is constant.