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11 Cards in this Set
- Front
- Back
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Classical economists
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believe in the market's ability to self-regulate through the invisible hand (pricing mechanism of the market)-laissez-faire
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Keynesian economists
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interested in the short run, not long run like classical economists. it was effective especially after the great depression when people were looking for an immediate fix
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Aggregate demand management
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government's attemp to control the aggregate level of spending in the economy
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equilibrium income
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the level of income toward which the economy gravitates in the short run because of the cumulative cycles of declining or increasing production
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potential income
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the level of income that the economy technically is capable of producing without generating accelerating inflation
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paradox thrift
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increased saving can lead to a decrease in expenditures, decreasing consumption and causing a recession
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Aggregate demand curve (AD)
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a curve that shows how a change in the price level will change aggregate expenditures on all goods and services in an economy (aggregate expenditures- GDP) downward sloping bec. as price decreases, expenditures increase
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wealth effect
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a fall in the price level will make the holders of money and of other financial assets richer, so they buy more.(if price level falls, the dollar in your pocket will buy more)
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interest rate effect
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the effect that a lower price level has on investment expenditures through the effect that a change in price level has on interest rates- decrease in the price level will increase real cash on hand, and how that effects interest rates,
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the international effect
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as price level falls, net exports will rise
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the multiplier effect
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the amplification of initial changes in expenditures
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