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17 Cards in this Set
- Front
- Back
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the business cycle |
the fluctuations in real GDP around the economy's natural level of real GDP |
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natural real gdp |
the level of real gdp where unemployment equals the natural rate (all unemployment is either real wage or search unemployment) |
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recessionary gap |
when actual real gdp is below natural real gdp |
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inflationary gap |
when actual real gdp exceeds natural real gdp |
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aggregate demand curve |
a curve that shows the quantity of domestically produced goods and services that households, firms, domestic governments and foreigners want at any price level |
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the nominal wage rate |
the dollar amount per period paid to the average worker |
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the real wage rate |
- the purchasing power of the nominal wage - determined by the inverse interaction of the nominal wage and the price level - real wage = nominal wage / price level |
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short run aggregate supply (sras) curve |
- curve shows the quantity of goods and services that firms choose to produce and sell at any given price level (assuming price level expectations and nominal wages constant) - will differ from natural real GDP if price level expectations are inaccurate or nominal wage levels imply real wage deviates from its long run level |
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long run aggregate supply (lras) curve |
- curve shows the quantity of goods and services produced and sold at any price level, assuming (price level expectations are consistent with the actual price level and nominal wages are such that real wages are consistent with long run level) - in the long run always equals natural real GDP |
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short run macroeconomic equilibrium |
- level of real gdp where ad curve crosses the sras curve - in short run, price level expectations can be inaccurate and real wage may deviate from its long run level, and real gdp can differ from natural real GDP |
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long run macroeconomic equilibrium |
- level of real gdp where ad curve crosses the lras curve - in long run, price level expectations are accurate and the real wage is equal to its long run level, therefore real gdp equals natural real gdp |
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stagflation |
a period of falling output and rising prices |
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supply-side adjustment mechanism |
the adjustment of the sras curve arising from changes in price level expectations and nominal wages that naturally accompany recessionary of inflationary gap situations |
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ch 14 rules of thumb |
- generally, changes in aggregate demand affect price level and real gdp in the short run but only the price level in the long run - changes in the long run aggregate supply have permanent effects on real gdp and price level |
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aggregate demand shifters |
- consumption spending (interest rates, consumer confidence, personal income tax rate) - investment spending (interest rates, business confidence, corporate tax rates) - government spending (infrastructure, military spending, etc.) - export spending (value of the CAD, foreign tariffs and non-tariff barriers, foreign GDP levels, foreign price levels) - import spending (value of CAD, canadian tariffs and non-tariff barriers, foreign price levels) |
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sras curve shifters |
- input prices (wage rates, natural resources prices, equipment prices, etc) - resource availability (linked to input prices) (immigration policy, natural resource depletion rates, discoveries) - price level expectations - technological advancements - govt regulations (environment regulations, tax remittance procedures, etc) |
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lras curve shifters |
- resource availability - technological advancements |
