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20 Cards in this Set
- Front
- Back
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Three Benchmarks
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Expected Price Level
Level of Potential Output Natural Rate of Unemployment |
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Expected Price Level
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refers to the price level that people in the economy expect will prevail during a certain period of time.
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Potential Output
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PO is the maximum sustainable output level
PO is output produced when no surprises in the price level(APL = Expected Price Level) PO- actual unemployment = natural rate unemployment |
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Natural Rate of Unemployment
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No cyclical unemployment is zero, produced at PO, Expected Price Level,
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Long Run Equilibrium
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if all these are meet NR,EX,PO
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Labor Wage
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wage and aggregate supply are directly related
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Nominal Wage
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-actual money that your getting paid
-Most Money contracts are this |
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Real Wage
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a wage adjusted for inflation, purchasing power of the workers
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What happens when actual price level is higher than expected?
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-Firms are winners because they making money
-Workers are loser because there wage does not cover the increase in the price level -NRU decreases -PO increases |
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What happens when actual output > potential output?
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Resource prices will increase because there will not enough resources to make the products
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What happens when actual price level is lower than expected?
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Workers are winners
Employers is a loser NRU>ARU PO<AO Look at Graphs |
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What happens when actual price level is lower than expected?
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Workers are winners
Employers is a loser NRU>ARU PO<AO Look at Graphs |
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Long Run
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resources can be changed on contract/renegotiation
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Expansionary Gap
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increase in demand=shift up in the AD curve
-demand pull inflation -GDP increases -Firms winners -Workers Losers because price level increases -actual output in the short run is greater than potential output -AUR < NRU |
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Long Run Equilibrium
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the movement back to potential output
Actual = Potential Actual PL = Expected PL NRU = Actual NRU |
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Contractionary Gap
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AD shifts left
Firms are Losers Workers are winners AO is less than PO Closing - firms will want workers to accept lower wages/demand curve shifts to the right and AO equals PO |
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Wage Stickiness
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nominal wages fall slowly, if at all, the supply side adjustments needed to close a contractionary gap may take so long as to seem ineffective
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Long Run Increases of AS are caused by what?
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Quality of and Quantity of Resources
Improvements in the state of technology Changes in the instutiutioinal arrangements of the economic system |
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Short run increaces in AS are caused by?
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Beneficial Supply Shock - unexpected events that increase aggregate supply sometimes only temporarily
- increase in resources such as wood or food, technological breakthroughs, tax cuts, |
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Short Run decreases in AS are caused by?
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Adverse Supply Shocks - unexpected events that reduce aggregate supply
Ex = Drought, Hurricane, Terrorism |
