Macroeconomics Chapter 10 - 2
short-run macroeconomic equilibrium
occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied
recessionary gap
output gap when potential GDP exceeds real GDP
output gap
the gap between real GDP and potential GDP
downward
Unemployment above the natural rate puts ___ pressure on the money wage rate.
real GDP
___ does not change when all prices changes by the same percentage.
quantity of real GDP demanded
total amount of final goods and services produced in the United States that people, businesses, governments, and foreigners plan to buy
quantity of real GDP supplied
total quantity of goods and services, valued in constant base year (2005) dollars, that firms plan to produce during a given period
vertical; potential GDP
The long-run aggregate supply curve is always ____ and is always located at _____.
below full-employment equilibrium
an equilibrium in which potential GDP exceeds real GDP
full-employment equilibrium
an equilibrium in which real GDP equals potential GDP
above full-emploment equilibrium
an equilibrium in which real GDP exceeds potential GDP
C+I+G+X-M
quantity of real GDP demanded (Y)
increase in full-employment labor, increase in capital, advance in technology
three reasons potential GDP can increase
price level
A change in the ___ changes the quantity of real GDP supplied.
aggregate demand increases
aggregate demand: when there is an increase in expected future income..
inflationary gap
the output gap when real GDP exceeds potential GDP
classical
macroeconomic view that believes that the economy is self-regulating and always at full employment
short-run aggregate supply
A change in money wage rate changes (long-run aggregate supply, short-run aggregate supply) changes.
price level; money wage rate
A movement along the LAS curve is accompanied by a change in the ____ and ____.
decreases; leftward
A rise in the money wage rate ____ short-run aggregate supply and shifts the short-run aggregate supply curve ____.
slower
An expected fall in the inflation rate makes the money wage rate rise ____.
faster
An expected rise in the inflation rate makes the money wage rate rise ____.
both
An increase in potential GDP increases (long-run aggregate supply, short-run aggregate supply)
smaller
Other things remaining the same, the higher the price level, the ___ is the quantity of real GDP demanded.
inflation
The AS-AD model explains _____ as a persistent increase in aggregate demand at a faster pace than that of the increase in potential GDP.
economic growth
The AS-AD model explains _____ as increasing long-run aggregate supply.
independent
The long-run aggregate supply curve is vertical because potential GDP is _____ of the price level.
upward
Unemployment below the natural rate puts ___ pressure on the money wage rate.
rise
When the price level rises and other things remain the same, interest rates ___.
decreases
When the price level rises but other things remain the same, real wealth _____.
relative to cost
With no change in price _________, production doesn't change.
AS-AD model
a model of an imaginary market for the total of all the final goods and services that make up real GDP
aggregate demand decreases
aggregate demand: if expected future income, inflation or profit decreases..
aggregate demand increases
aggregate demand: if expected future income, inflation, or profit increases..
aggregate demand decreases
aggregate demand: if fiscal policy decreases government expenditure, increases taxes, or decreases transfer payments..
aggregate demand increases
aggregate demand: if fiscal policy increases government expenditure, decreases taxes, or increases transfer payments..
aggregate demand decreases
aggregate demand: if monetary policy decreases the quantity of money and increases interest rates
aggregate demand increases
aggregate demand: if monetary policy increases the quantity of money and decreases interest rates..
aggregate demand increases
aggregate demand: if the exchange rate decreases or foreign income increases..
aggregate demand decreases
aggregate demand: if the exchange rate increases or foreign income decreases..
aggregate demand increases
aggregate demand: when there is an increase in expected future inflation..
aggregate demand increases
aggregate demand: when there is an increase in expected future profits..
disposable income
aggregate income minus taxes and transfer payments
exchange rate
amount of foreign currency that you can buy with a U.S. dollar
stagflation
combination of recession and inflation
price level, expectations, fiscal policy and monetary policy, world economy
four main factors that buying plans depend on
fiscal policy
government's attempt to influence the economy by setting and changing taxes, making transfer payments, and purchasing goods and services
Keynesian
macroeconomic view that believes that left alone, the economy would rarely operate at full employment and that to achieve and maintain full employment, active help from fiscal policy and monetary policy is required
monetarist
macroeconomic view that believes that the economy is self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady
new classical
macroeconomic view that business cycle fluctuations are the efficient responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of technological change
new Keynesian
macroeconomic view that holds not only that the money wage rate is sticky but also that prices of goods and services are sticky; with a sticky price level, the short-run aggregate supply curve is horizontal at a fixed price level
expectations
most significant influence on aggregate demand in the Keynesian view
quantity of money
most significant influence on aggregate demand in the monetarist view
technological change
most significant influence on both aggregate demand and aggregate supply in the classical view
aggregate supply change
occurs when an influence on production plans other than the price level changes
long-run macroeconomic equilibrium
occurs when real GDP equals potential GDP
full employment
quantity of real GDP supplied = potential GDP
aggregate demand
relationship between the quantity of real GDP demanded and the price level
aggregate supply
relationship between the quantity of real GDP supplied and the price level
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
monetary policy
the Fed's attempt to influence the economy by changing interest rates and the quantity of money
real wealth
the amount of money in the bank, bonds, stocks and other assets that people own, measured in terms of the goods and services that the money, bonds and stocks will buy
exchange rate; foreign income
two main influences that the world economy has on aggregate income
departures from full employment; expectations about inflation
two reasons money wage rate can change
wealth effect, substitution effects
two reasons the aggregate demand curve slopes downward