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14 Cards in this Set
- Front
- Back
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A model that explains short-run fluctuations in real GDP and the price level.
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Aggregate demand and aggregate supply model
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A curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government.
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Aggregate demand curve
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A curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms.
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Short-run aggregate supply curve
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what are three reasons why the aggregate demand curve downward sloping?
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1. The wealth effect
2. The interest-rate effect 3. The international-trade effect |
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What are three variables for why the aggregate demand curve shifts?
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1. Changes in government policies
2. Changes in the expectations of households and firms 3. Changes in foreign variables |
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The actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives.
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Monetary policy
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Changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
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Fiscal policy
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A curve that shows the relationship in the long run between the price level and the quantity of real GDP supplied.
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Long-run aggregate supply curve
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What are the three reasons why the failure of workers and firms to predict the price level accurately results in an upward-sloping SRAS curve?
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1. Contracts make some wages and prices "sticky"
2. Firms are often slow to adjust wages 3. Menu costs make some prices sticky |
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The cost to firms of changing prices
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Menu costs
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What are five variables that shift the short-run aggregate supply curve?
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1. Increases in labor force and in the capital stock.
2. Technological change 3. Expected changes in the future price level. 4. Adjustments of workers and firms to errors in past expectations about the price level. 5. Unexpected changes in the price of an important natural resource. |
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An unexpected event that causes the short-run aggregate supply curve to shift.
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Supply shock
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A combination of inflation and recession, usually resulting from a supply shock.
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Stagflation
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What are the two assumptions made about the basic aggregate model that make it difficult to predict?
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1. The economy does not experience continuing inflation.
2. That the economy does not experience long-run growth. |
