Econ chapter 11
What is most likely when the economy is operating below the potential GDP
The Federal Reserve will lower interest rates
an unexpected change in the price of oil would be called
a supply shock
in the long run, the level of output that can be sustained without inflation is
the potential GDP
the aggregate demand curve shows the relationship between
the price level and the quantity of real GDP demanded
a rapid increase in the price of oil can shift the short run aggregate supply
to the left
when wages are sticky in the short run, the firms' short run aggregate supply curve is
upward sloping
what will shift the short run aggregate supply to the left
A decrease in the size of the labor force
the graphical relationship between interest rates and aggregate output in the goods market is the
IS curve
That factor will cause the aggregate demand curve to shift
a change in expectations of households and firms
Fluctuations in total spending in the economy may affect:
both employment and production in the short run
How can government policies shift the aggregate demand curve to the right?
by increasing gov purchases
a new discovery of oil that lowers the price of energy can cause a
cost shock
in the short run, a supply as a result of an unexpected decrease in oil prices will
decrease the price level but increase real gdp
the equation that shows how the Fed's interest rate decision depends on several economic factors is called the
fed rule
When interest rates _____, aggregate expenditure_____, ceteris parades
increase falls
what shifts the aggregate demand curve to the right
lower interest rates
The economy is in long-run equilibrium when the short run aggregate supply and the aggregate demand curve intersect at a point
on the long-run aggregate supply curve
the primary factors the fed considers when making interest rate decisions are
output and inflation
the live of aggregate output that can be sustained in the long run without spurring inflations is called the
potenial GDP
when consumption increases because overall prices fall this change is due to the
real wealth effect
the aggregate demand and aggregate supply model explains
short run fluctuations in real GDP and the price level
if wage increases lag price increases then wages are said to be
sticky