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16 Cards in this Set
- Front
- Back
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aggregate demand-aggregate supply model (AD-AS model)
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enables us to analyze changes in real GDP and the price level simultaneously
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aggregate demand
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a schedule or curve that shows the amounts of real output (real GDP) that buyers collectively desire to purchase at each possible price level
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real-balances effect
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the tendency for increases in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level
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interest-rate effect
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the tendency for increases in the price level to increase the demand for money, which raise interest rates, and , as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases)
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foreign purchases effect
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when the U.S> price level rises relative to foreign price levels, foreigners buy fewer U.S. gods and Americans buy more foreign goods
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determinants of aggregate demand
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factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve
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aggregate supply
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a schedule or curve showing the relationship between the price level and the amount of real domestic output that firms in the economy produce
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immediate-short-run aggregate supply curve
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an aggregate supply curve for which real output, but not the price level, changes when the aggregate demand curves shift
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short-run aggregate supply curve
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an aggregate supply curve relevant to a time period in which input prices (particularly nominal wages) do not change in response to changes in the price level
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long-run aggregate supply curve
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the aggregate supply curve associated with a time period in which input prices (especially nominal wages) are fully responsive to changes in the price level
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determinants of aggregate supply
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factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve
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productivity
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a measure of the relationship between a nation's level of real output and the amount of resources used to produce that output
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equilibrium price level
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the price level at which the aggregate demand curve intersects the aggregate supply curve
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equilibrium real output
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the GDP at which the total quantity of final goods and services purchased is equal to the total quantity of final goods and services produced
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menu costs
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the reluctance of firms to cut prices during recessions (that they think will be short lived) because of the costs of altering and communicating their price reductions
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efficiency wages
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wages that elicit maximum work effort and thus minimize labor costs per unit of output
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