Macro Final

Primary tools of protectionism include:

1. Tariffs 2. Import quotas

What are substitutes?

A substitute good is a good that can be used in place of another; affects the demand curve.

What are inferior goods?

An inferior good is a good whose demand decreases when consumer income rises, unlike normal goods; affects the demand curve (luxury; Olive Garden versus McDonalds).

What is the modern consensus on monetary and fiscal policy?

Both effective in the short run but that neither can reduce the unemployment rate in the long run.

What does demand side economics believe in regards to how fiscal policy impacts the economy?

Change in AD that change output through the multiplier process

____ unemployment is created by a recession.

Cyclical

absolute advantage

One can do something better than other people (has the ability).

Who confirms the Chair?

Senate

Say there's an original good and an alternative good, and the price of the alternative good rises. How would this affect the demand for the original good?

The demand curve for the original good would shift to the right.

What is the reason we have an economy?

There are gains from trade.

Would John Maynard Keynes believe that fiscal policy should be used in a discretionary way?

Yes

Would John Maynard Keynes believe that monetary and/or fiscal policy can reduce unemployment in the long run?

Yes

Donna was laid off by her employer at the beginning of 2014. She looked for a job for three months, but could not find anything suitable. She then decided to volunteer for a soup kitchen. Donna is considered to be

a discouraged worker.

Up-scale dining might be considered

a normal good.

economy

a system for coordinating the production and distribution of goods and services

depression

a very deep and prolonged downturn.

To measure the economy's growth with accuracy, we need a measure of ____.

aggregate output.

"other things equal" assumptuion

all other relevant factors remain unchanged

The opposite of a recession would be

an expansion.

capital

anything long lasting that is created by humans for use in the production of other things (money, machinery, factories, oil wells, eggs)

resource

anything that can be used to produce something else

A movement along the supply curve is a result of a

change in the price.

When tastes change against a good, demand for the good

decreases.

When the best technology used to produce the good is no longer available, supply of the good

decreases.

When the number of consumers falls, market demand for the good

decreases.

When the number of producers falls, market supply of the good

decreases.

When the price of a complement in production falls, supply of the original good

decreases.

A rise in nominal wages shifts the short-run aggregate supply curve

leftward.

The output gap is the

percentage difference between actual aggregate output and potential output.

recession

periods of economic downturns when output and employment are falling.

expansion

periods of economic upturns when output and employment are rising

Investment in ____ is necessary for long-run economic growth.

physical capital

goods

physical items produced in an economy

inflation

rising aggregate price level

As a whole, is the Soviet Union run by a more freshwater or saltwater school of thought?

saltwater; command economy

price stability

the aggregate price level is changing only slowly

inflation rate

the annual percent change in the aggregate price level

positive economics

the branch of economic analysis that describes the way the economy actually works.

Stagflation is

the combination of inflation and stagnating (or falling) aggregate output.

labor force

the sum of employment and unemployment

Supply curves usually slope

upward.

tradeoffs

when you give up one thing to get something else

What would be the present value of $1 realized one year from now? Explain.

$1/(1 + r); the amount of money you must lend out today to have $1 one year from now.

How is disposable income allocated?

1) consumer spending 2) private savings

These keep track of flows of money between different parts of the economy.

1) national income 2) product accounts

There are ____ factors that shift the aggregate demand curve:

4; 1) changes in expectations 2) wealth 3) stock of physical capital 4) government policies (fiscal and monetary)

Answer the following: https://gyazo.com/cba9a2be3c8a4972191711fb5251297c

5

Helped or Hurt? Jill has worked at her current position without a raise for 4 years. Because inflation has risen 5% over the course of the 4 years, she has struggled to pay day-to-day living expenses and her house payment. She asked her employer for a raise and he gave her a 6% raise because she is such a good worker.

Helped

What finally stopped the Great Depression?

Public acceptance of deposit insurance.

business cycle

The short-run alternation between economic downturns and economic upturns.

The push to complete the national accounts came when?

World War II

services

activities produced in an economy

When the price of a substitute falls, demand for the original good

decreases.

The supply and demand model is a model of

how a competitive market works.

A demand schedule shows

how much consumers are willing and able to buy at different prices.

The marginal propensity to save, or MPS, is the

increase in household savings when disposable income rises.

A multiplier is planned as a (positive / negative ) shock.

positive

A fall in nominal wages shifts the short-run aggregate supply curve

rightward.

The economy is self-correcting. That is,

shocks to aggregate demand affect aggregate output in the short run, but not the long run.

individual choice

the decision by an individual of what to do, which necessarily involve a decision of what not to do.

What is the key to a much better standard of living for everyone?

trade

GDP can be calculated three ways:

1) Add up the value added of all producers 2) Add up all aggregate spending on domestically-produced final goods and services. This results in the equation: GDP = C + I + G + X - IM 3) Add up all income paid to factors of production

The PPC teaches two important lessons:

1) By agreeing to specialize and trade, both traders can be better off. 2) Everyone has a comparative advantage in something.

The 3 major Macroeconomic gauges are:

1) GDP 2) Unemployment 3) Inflation

Every economy must solve 3 main coordination problems:

1) What and how much to produce. 2) How to produce it. 3) For whom to produce it.

How can the Federal Reserve increase or reduce the monetary base?

1) buying government debt (U.S. Treasury Bills) from banks 2) selling government debt to banks

Over time, ____ which consists of goods possessing value aside from their role as money, such as gold and silver coins, was replaced by ____, such as paper currency backed by gold.

1) commodity money 2) commodity-backed money

The expanded circular flow diagram shows the relationship between

1) household 2) firms 3) government 4) rest of the world

The simplest circular-flow diagram illustrates an economy that contains only two inhabitants: ____ and ____.

1) households 2) firms

There are two general sources of economic growth:

1) increase in an economy's resources 2) progress in technology

The factors of production are:

1) land 2) labor 3) capital 4) entrepreneurship

A competitive market has two characteristics

1) many buyers and sellers 2) identical good or service

Almost all countries calculate a set of numbers known as the ____ and ____.

1) national income 2) product accounts

What can a production possibility curve illustrate?

1) opportunity cost 2) efficiency 3) economic growth

For the supply curve, as price ____, the quantity supplied _____. This is called ____.

1) rises 2) rises 3) the law of supply

What does the Federal Reserve do?

1) sets reserve requirements 2) conducts monetary policy

The ____ shows the quantity supplied at each price and is graphically represented by a ____.

1) supply schedule 2) supply curve

How are government purchases of goods and services (G) paid for?

1) tax receipts 2) government borrowing

The short-run aggregate supply curve slopes ____ because

1) upward 2) nominal wages are sticky in the short run.

There are two main reasons that economists disagree:

1) which simplifications to make in a model 2) values

What does the Federal Reserve System consist of?

1. Board of Governors (Washington, D.C.) 2. Regional Federal Reserve Banks

What role do governments play in promoting economic growth?

1. Direct role: building infrastructure: roads, power lines, ports, information networks, and other parts of an economy's physical capital. 2. Indirect role: Making high rates of private investment spending possible.

The Banking Act of 1935 contained three titles:

1. FDIC (Governments hand in the American Economy) 2. Presidential Appointments (Political Ideologies) 3. FOMC (not focused on national debt)

Adding government and economic interaction with the rest of the world to this simplified economy results in two changes:

1. First, governments can save, too. 2. Second, savings need not be spent on physical capital located in the same country.

What are two things that allow for an outward shift of the production possibilities model?

1. Increase in Natural resources 2. Technology

What effects do tariffs have?

1. Make prices higher for domestic consumers! 2. Can spark trade wars 3. In U.S., 1% of federal government revenue comes from tariffs

On the topic of whether monetary policy should be used in a discretionary way, there is a broad consensus among macroeconomists on these points:

1. Monetary policy should play the main role in stabilization policy. 2. The central bank should be independent. 3. Discretionary fiscal policy should be used sparingly.

What are the functions of the Federal Reserve?

1. Provide financial services 2. Supervise and regulate banking institutions 3. Maintain the stability of the financial system 4. Conduct monetary policy

Some factors that affect a country's approach to trade:

1. Transportation costs 2. Fear of becoming reliant upon another country 3. National pride

When is the government a source of savings? A source of dissavings?

1. When it runs a positive budget balance or budget surplus. 2. When it runs a negative budget balance or budget deficit.

By 1933, banks had been separated into two categories: ____ (covered by insurance) and ____ (not covered).

1. commercial 2. investment

What do increases in productivity arise from?

1. increases in physical capital 2. increases in human capital 3. advances in technology

There are four main types of financial assets:

1. loans 2. bonds 3. stocks 4. loan-backed securities

Casualties of trade include:

1. lost jobs 2. increased structural unemployment

What role do governments play in retarding economic growth?

1. political instability 2. neglect or violation of property rights 3. corruption 4. excessive government intervention

The three tasks of a financial system

1. reducing transaction costs 2. reducing risk 3. providing liquidity

If a country has a working-age population of 200 million, 135 million people with jobs, and 15 million people unemployed and seeking employment, then its labor force is:

150 million.

There are ____ macroeconomic gaps:

3; 1) recessionary gap 2) inflationary gap 3) output gap

There are ____ key elements of a supply and demand model:

5; 1) demand curve 2) supply curve 3) demand and supply curve shifts 4) market equilibrium 5) changes in the market equilibrium

There are ____ factors that shift the demand curve:

6; 1) substitutes (Sprite and 7-Up) 2) complements (cookies and milk) 3) normal goods (most things) 4) inferior goods (bus ride versus taxi ride) 5) changes in tastes (top hats) 6) changes in expectations (gas)

There are ____ factors that shift the supply curve:

9; 1) cost of inputs 2) government policies 3) taxes / tax abatements 4) regulations 5) subsidies 6) number of firms 7) technological change 8) expectation about future prices 9) natural disasters / weather

What causes a movement along the demand curve?

A change in the quantity demanded of a good that is the result of a change in that good's price.

What is the result of a negative demand shock?

A negative demand shock leads to a lower aggregate price level and lower aggregate output.

What is the result of a negative supply shock?

A negative supply shock leads to a lower aggregate output and higher aggregate price level.

What are normal goods?

A normal good is any good for which demand increases when income increases; affects the demand curve.

What is the result of a positive demand shock?

A positive demand shock leads to a higher aggregate price level and higher aggregate output.

What is the result of a positive supply shock?

A positive supply shock leads to a higher aggregate output and lower aggregate price level.

What does demand side economics believes causes instability in the long run?

AS shocksAD changes (Investment ≠ Savings)

The study of economics began with (person).

Adam Smith

The chief proponent of supply side economics is

Adam Smith.

What does demand side economics believe in regards to how money supply changes impact the economy?

Changes in the money supply change investment and consumer spending shifting AD to the right

What does supply side economics believe in regards to how money supply changes impact the economy?

Changes in the money supply increase price level but do not change output

Provide an example of a competitive market, and explain why that's the case.

Cotton; even Levi Strauss & Co. accounts for only a tiny fraction of transactions, making it unable to influence the price at which cotton is bought and sold.

How does economic growth affect the production possibility curve?

Economic growth results in an outward shift of the production possibility curve because production possibilities are expected.

What are changes in tastes?

Economists usually lump together changes in demand due to fads, beliefs, cultural shifts, and so on under the heading of changes in tastes, or preferences; affects the demand curve.

What are changes in expectations?

Expectations of a future drop in price lead to a decrease in demand today and vice versa; affects the demand curve. (gas price will go down over the weekend; low demand until then)

True or False Having an absolute advantage is the same thing as having a comparative advantage.

False

True or False Macroeconomic policy more easily deals with supply shocks than demand shocks.

False Macroeconomic policy has a much harder time dealing with supply shocks than with demand shocks.

True or False A multiplier focuses on suppliers then consumers.

False; consumers then suppliers

True or False When considering the market demand curve, we consider a simultaneous change in the prices of all final goods and services.

False; aggregate demand curve

True or False Not every country has an open economy.

False; although, some economies are more open than others.

True or False From a national perspective, a dollar generated by national savings and a dollar generated by capital inflow are equivalent.

False; both can finance the same dollar's worth of investment spending, but any dollar borrowed from a saver must eventually be repaid with interest.

True or False Nominal GDP accounts for inflation.

False; real GDP

True or False Economists prefer deflation over inflation.

False; they aim for price stability.

What does demand side economics believe in regards to appropriate policies?

Fiscal & Monetary policy as needed

What does supply side economics believe in regards to how fiscal policy impacts the economy?

Fiscal policy would only worsen the situation causing more inflation or a deeper recession

What do national income and product accounts keep track of?

Flows of money between different parts of the economy.

macroeconomics

Focuses on the bigger picture, the overall ups and downs of the economy.

What is the difference between freshwater and saltwater schools of thought?

Freshwater schools of thought (University of Chicago) espoused laissez-faire ideas, whereas saltwater schools of thought (University of California) believed in government regulation.

Know the GDP equation and the elements that go into it.

GDP = C + I + G + X - IM C - consumption I - investment G - government spending X - exports IM - imports

On the topic of whether monetary policy should be used in a discretionary way, what are there debates over?

How should the central bank should set its policy? For example: 1. Should the central bank be given a defined target or the discretion to manage the economy? 2. Should the central bank manage asset prices? 3. What should the central bank do when conventional policy has reached it limits?

Helped or Hurt? Jack retired five years ago and now lives on a fixed-income annuity and a small savings account that pays him 1% interest on the balance. The current inflation rate is 1.7%.

Hurt

Helped or Hurt? James Works at the local tax agency. The county commissioners just voted to sell license tags at the same rate for the next 5 years. (Explain impact on county government.)

Hurt

Why will frictional unemployment account for a larger share of total unemployment when the unemployment rate is low in a given nation.

In periods of lower unemployment, workers tend to be jobless for shorter periods of time.

What does supply side economics believes causes instability in the long run?

Inappropriate monetary policy

Do you own your loan?

It is a financial asset from the bank's point of view, but a liability from your point of view.

Suppose the United States dramatically increases benefits for unemployed workers. Explain hat will happen to the natural rate of unemployment.

It will rise.

The chief proponent of demand side economics is

John Maynard Keynes.

What economic policy is attributed to Adam Smith?

Laissez-faire (hands free)

What does supply side economics believe in regards to appropriate policies?

Let the economy self-adjust

How are long-run economic growth and short-run fluctuations during a business cycle represented using the aggregate demand-aggregate supply model?

Long-run economic growth is represented by a rightward shift of the long-run aggregate supply curve. Short-run fluctuations are represented by shifts in the aggregate demand or short-run aggregate supply that causes movements of short-run equilibrium output - above or below potential output.

How are long-run economic growth and short-run fluctuations during a business cycle represented using the production possibilities curve model?

Long-run economic growth is represented by an outward shift of the production possibilities curve. Short-run fluctuations are represented by a movement from a point below the production possibilities curve toward a point on the production possibilities curve (economic recovery/expansion) or by a movement to a point farther below the production possibilities curve (recession/contraction)

What is the narrowest monetary aggregate?

M1

How many monetary aggregates does the Federal Reserve calculate, and what are they?

M1: contains only money in circulation, traveler's checks, and checkable bank deposits (valued at $1.6 trillion) M2: contains M1 and near moneys, financial assets that aren't directly usable as a medium of exchange but can be easily exchanged (valued at $8.4 trillion)

What is the most important use of GDP?

Measure the size of the economy.

What is hyperinflation?

Monetary inflation occurring at a very high rate.

Would Adam Smith believe that expansionary fiscal policy is effective in fighting recessions?

No

Would Adam Smith believe that expansionary monetary policy is helpful in fighting recessions?

No

Would Adam Smith believe that fiscal policy should be used in a discretionary way?

No

Would Adam Smith believe that monetary and/or fiscal policy can reduce unemployment in the long run?

No

Would Adam Smith believe that monetary policy should be used in a discretionary way?

No

Can natural resources be used as a determinant of productivity in modern day?

Not so much; natural resources are a much less important determinant than physical and human capital for most countries.

Would John Maynard Keynes believe that expansionary monetary policy is helpful in fighting recessions?

Not very

Who nominates the Chair?

President

How is economic growth measured?

Real GDP per capita; eliminates the effects of changes in the price level and changes in population size.

Set the standard for national income accounting (national income accounts).

Simon Kuznets

What does supply side economics believe in regards to the stability of the economy?

Stable in the long run

Is unemployment bad?

The Federal Reserve says that an unemployment rate between 3 to 5 percent is "good for the national economy"; really high unemployment is bad, really low unemployment is also bad.

What does the law of demand say?

The demand curve slopes downward.

According to Smith, what happens when people are selfish?

The economy benefits.

comparative advantage

The opportunity cost of producing the good is lower for that individual than for other people (has the resources).

In the long-run aggregate supply curve, what effect would a fall in the aggregate price level have?

The quantity of aggregate output supplied would be unchanged in the long run.

Why does frictional unemployment occur?

There are always people looking for better jobs or even their first job.

How can one explain that most clothing is made in overseas countries that are much poorer than the United States?

These countries have a comparative advantage in clothing production.

What general effect do collective bargaining and minimum wage have on unemployment?

They lead to structural unemployment.

How does one evaluate a project in which costs or benefits are realized in the future?

Transform costs/benefits into their present values. After this transformation, choose the project with the highest net present value.

True or False A country can have a higher GDP simply by having a higher population.

True

True or False A multiplier affects the aggregate.

True

True or False Trade can be beneficial to both parties even if one has an absolute advantage in the production of both goods.

True

True or False Discretionary fiscal policy is considered generally unadvisable.

True Unless there are special circumstances.

True or False AND WHY? Real GDP does not include many of the things that contribute to happiness.

True; GDP does not include such things as leisure time, volunteerism, housework, and natural beauty.

True or False AND WHY? Long-run economic growth is normally a gradual process.

True; real GDP per capita grows at most a few percent per year.

What are complements?

Two goods are complements if a fall in the price of one good makes people more willing to buy the other good; affects the demand curve.

What does demand side economics believe in regards to the stability of the economy?

Unstable

True or False and WHY? Inflation makes everyone poorer.

Wages and incomes are adjusted to take into account a rising price level, leaving real wages and real income unaffected.

What does supply side economics believe in regards to prices and wage assumptions?

Wages and prices are fully flexible

What does demand side economics believe in regards to prices and wage assumptions?

Wages are sticky and prices are downwardly inflexible

Give an example of a financial asset.

When a saver lends funds to a company, the loan is a financial asset sold by the company that entitles the lender to future income from the company.

When is the economy in long-run macroeconomic equilibrium?

When the point of short-run macroeconomic equilibrium is on the long-run aggregate supply curve.

When is the economy in short-run macroeconomic equilibrium?

When the quantity of aggregate output supplied is equal to the quantity demanded.

In the aggregate demand-aggregate supply model, long-run economic growth is shown how?

With a rightward shift of the long-run aggregate supply curve.

How is the AS-AD model labeled?

X-axis: Real GDP Y-axis: Aggregate price level

Would John Maynard Keynes believe that expansionary fiscal policy is effective in fighting recessions?

Yes

Would John Maynard Keynes believe that monetary policy should be used in a discretionary way?

Yes

The opposite of a business cycle peak would be

a business-cycle trough.

When the supply curve shifts, this is called

a change in supply.

When there is a movement along the supply curve, this is called

a change in the quantity supplied.

A leftward shift of the aggregate supply curve would be caused by

a decrease in short-run aggregate supply.

The change in demand

a shift of the demand curve, which changes the quantity demanded at any given price.

model

a simplified representation of a real situation that is used to better understand real-life situations

Inflationary gap is when

aggregate output is above potential output.

Recessionary gap is when

aggregate output is below potential output.

economic growth

an increase in the maximum possible output of an economy

A rightward shift of the aggregate supply curve would be caused by

an increase in the short-run aggregate supply.

The key feature of a competitive market is that

an individual's actions don't have a noticeable effect on the price at which the good or service is sold.

Fast food dining might be considered

an inferior good.

land

anything drawn from nature for use in the production of goods and services

A shift of the supply curve is a result of a

change in the quantity supplied at every price.

There are six factors that shift the demand curve. Normal goods and inferior goods are two of these factors, which fall under

changes in income.

There are six factors that shift the demand curve. Substitutes and complements are two of these factors, which fall under

changes in the price of related goods.

The consumer price index reflects the:

changes in the prices of goods and services typically purchased by consumers.

International trade results from ____ advantage.

comparative

The basis for trade is

comparative advantage.

Due to the current slump in investment spending, Melanie has been laid off from her programming job. Her employer promises to rehire her when business picks up.

cyclical

When the price is expected to fall in the future, demand for the good ____ today.

decreases

When the price is expected to rise in the future, supply of the good

decreases today.

When income falls, demand for a normal good

decreases.

When income rises, demand for an inferior good

decreases.

When the price of a complement rises, demand for the original good

decreases.

When the price of a substitute in production rises, supply of the original good

decreases.

When the price of an input rises, supply of the good

decreases.

In general, economic expansions are characterized by:

decreasing rates of unemployment.

Demand curves usually slope

downward.

What does the AS-AD model analyze?

economic fluctuations

efficient in allocation

economy allocates resources so consumers are as well as possible

What do banks loan out to borrowers?

excess reserves

deflation

falling aggregate price level

What type of money is the modern dollar?

fiat money

As a whole, is the United States run by a more freshwater or saltwater school of thought?

freshwater; market economy

A person who moved to a new state and took two months to find a new job experienced ____ unemployment.

frictional

After completing a complex programming project, Melanie is laid off. Her prospects for a new job requiring similar skills are good, and she has signed up with a programmer placement service. She has passed up offers for low-paying jobs.

frictional

wants

goods or services that are not necessary, but that we desire or wish for

needs

goods or services that are required for survival

A supply curve shows...

graphically how much of a good or service people are willing to sell at any given price.

If inflation is ____ than expected, borrowers gain at the expense of lenders.

higher

The market supply curve indicates the

horizontal sum of the individual supply curves of all producers in the market.

Give an example of a physical asset.

house

There are six factors that shift the demand curve. Changes in tastes and changes in expectations are two of these factors, which fall under

humans.

The marginal propensity to consume, or MPC, is the

increase in consumer spending when disposable income rises (the fraction of an additional dollar spent on consumption).

When the price is expected to fall in the future, supply of the good ____ today.

increases

When the price is expected to rise in the future, demand for the good ____ today.

increases

When income falls, demand for an inferior good

increases.

When income rises, demand for a normal good

increases.

When tastes change in favor of a good, demand for the good

increases.

When the number of consumers rises, market demand for the good

increases.

When the number of producers rise, market supply of the good

increases.

When the price of a complement falls, demand for the original good

increases.

When the price of a complement in production rises, supply of the original good

increases.

When the price of a substitute rises, demand for the original good

increases.

When the price of an input falls, supply of the good

increases.

When the technology used to produce the good improves, supply of the good

increases.

Would Adam Smith have advocated more for independence from or dependence on the government? Explain.

independence; he stressed that people should be free to make decisions without government meddling.

A loan is a financial asset that is owned by the (lender / borrower).

lender

Financial innovation has allowed the creation of a wide range of these.

loan-backed securities

If inflation is ____ than expected, lenders gain at the expense of borrowers.

lower

normative economics

makes prescriptions about the way the economy should work.

Money plays three roles:

medium of exchange, store of value, unit of account

Give an example of a loan-backed security.

national debt

Which would be higher: nominal or real GDP?

nominal

Sticky wages are

nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages.

The law of supply says

other things being equal, the price and quantity supplied of a good are positively related.

In a nutshell, Mr. Reynolds says that the main task of the Federal Reserve is to

prevent another Great Depression, and slow recessions.

efficient in production

produces a point on its production possibility curve

The study of economics began with (event).

publication of the Wealth of Nations (1776)

scarce

quantity available isn't large enough to satisfy all productive uses

The multiplier is the

ratio of the total change in real GDP caused by an autonomous change in aggregate spending to the size of that autonomous change.

How do gains from trade arise?

specialization

A person who is unemployed because of a mismatch between the quantity of labor supplied and the quantity of labor demanded is experiencing ____ unemployment.

structural

Melanie loses her programming job because the development of new packaged software programs means employers no longer need to hire as many programmers.

structural

When the price of a substitute in production falls,

supply of the original good increases.

The nominal wage is

the dollar amount of the wage paid.

aggregate output

the economy's total production of goods and services for a given time period

A demand curve is

the graphical representation of the demand schedule; it shows how much of a good or service consumers want to buy at any given price.

The multiplier effect refers to

the increase in final income arising from any new injection of spending.

unemployment rate

the percentage of the labor force that is unemployed

business-cycle peak

the point at which the economy turns from expansion to recession

business-cycle trough

the point at which the economy turns from recession to expansion

terms of trade

the ratio of an index of a country's export prices to an index of its import prices

The government is the main means of

the redistribution of the national income and gross domestic product to meet the needs necessary in order for economic growth.

The aggregate demand curve shows

the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government and the rest of the world.

The aggregate supply curve shows

the relationship between the aggregate price level and the quantity of aggregate output in the economy.

The long-run aggregate supply curve shows

the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible.

economics

the study of choice under conditions of scarcity

labor

the time and effort people contribute to the production process (human element)

employment

the total number of people currently working for pay

unemployment

the total number of people who are actively looking for work but aren't currently employed

entrepreneurship

the willingness of people to organize, operate, and assume the risks involved with business ventures

How do households earn income?

wages (factor markets)

opportunity cost

what you must give up in order to get it