Macro Chap 10

increases

A tax cut or an increase in transfer payments (unemployment or welfare) _________ aggregate demand.

disposible income

Aggregate income minus taxes plus transfr payments.

above full-employment equilibrium

An equilibrium in which real GDP exceeds potential GDP.

Keynesian policy

Calls for fiscal policy and monetary policy to actively offset changes in aggregate demand that create recession.

classical policy

Emphasizes the potential for taxes to stunt incentives and create inefficiency. Minimizing affects of taxes, employment, investment and technological change keeps the economy expanding at appropriate and rapid pace.

below full-employment equilibrium

Equilibrium in which potential GDP exceeds real GDP.

Keynesian

Macroeconomist that believes if the economy is left alone, it will rarely operate at full employment and it needs help from fiscal and monetary policy. Expectations are the most significant influence on aggregate demand fluctuations.

classical

Macroeconomist that believes the economy is self-regulating and always at full employment.

monetarist

Macroeconomist who believes that economy is self-regulating and that it will operate normally at full employment, given that monetary policy is not erratic and the pace of money growth is kept study. Quantity of money is most significant influence on aggregate demand.

new Keynesian

Modern view of the original that holds that money wage rate and the prices of goods and services are sticky.

short-run macroeconomic equilibrium

Occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied. The point of intersection of the AD and SAS curve.

long-run macroeconomic equilibrium

Occurs when the real GDP equals potential GDP - equivalently, when the economy is on its LAS curve.

full-employment equilibrium

Real GDP equals potential GDP.

long-run aggregate supply

Relationship between the quantity of real GDP supplied and the price level when the money wage rate changes in step with the price level to maintain full employment.

short-run aggregate supply

Relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant.

aggregate supply

Relationship between the quantity of real GDP supplied and the price level.

monetarist policy

Same as classical view - keep taxes low and the money growth should stay on steady path.

aggregate demand curve

Tells the quantity of real GDP demanded at each price level.

aggregate supply curve

Tells us the quantity of real GDP supplied at each price level.

monetary policy

The Fed's (Federal Reserve's) attempt to influence the economy by changing interest rates and the quantity of money.

output gap

The gap between real GDP and potential GDP in an above full-employment equilibrium is called the ________ _____.

fiscal policy

The government's attempt to influence the economy by setting and changing taxes, making transfer payments, and purchasing goods and services.

aggregate demand

The relationship between the quantity of real GDP demanded and the price level. Can change depending on expectation, monetary and fiscal policy, and the world economy.

quantity of real GDP demanded

Total amount of final goods and services produce in the US that people, businesses, governments, and foreigners plan to buy, depending on price level, expectations, fiscal and monetary policy, and the world economy.

quantity of real GDP supplied

Total quantity of goods and services valued in a constant base year (like 2005), that firms plan to produce during a given period of time. Depends on the quantity of labor employed, the quantity of physical and human capital, and the state of technology.

new classical

View that business cycle fluctuations are the efficient responses of well-functioning market economy that is bombarded by shocks that arise from uneven pace of technological change.

inflationary gap

When real GDP exceeds potential GDP, the output gap is called an _________ ______.

recessionary gap

When the potential GDP exceeds real GDP, the output gap is called a ___________ ______.

stagflation

combination of recession and inflation

Y=C+I+G+X-M

quantity of real GDP demanded