Unit 3 Key Terms

class economics

"means of production", which are basically all the physical or monetary things that can be used to make money, such as factories, tools, retail estate, computers etc. (Karl Marx)

deflation

A decrease in the general price level

stagflation

A period of falling output and rising prices

increase/decrease in aggregate supply

A shift in aggregate supply can be attributed to many variables, including changes in the size and quality of labor, technological innovations

recessionary gap

The amount by which full-employment GDP exceeds equilibrium GDP.

real profit

The amount of money left after all bills have been paid.

the ratchet effect

The concept that humans continually improve on improvements, that they do not go backward or revert to a previous state. Progress occurs because improvements move themselves upward, much like a ratchet.

aggregate quantity demanded

The quantity of final output that buyers will purchase at a given price level.

real GDP demanded

The relationship between the quantity of real GDP demanded and the price level is called aggregate demand

intermediate range

The rising segment of the aggregate supply curve, which represents an economy as it approaches full-employment output.

intrest rate effect

The tendency for increases in the price level and increases in the demand for money

export spending

The total amount of spending on goods and services currently produced in one country and sold abroad to residents of other countries in a given period of time.

keynesian economics

Theory based on the principles of John Maynard Keynes, stating that government spending should increase during business slumps and be curbed during booms.

foreign trade effect

When U.S. price level increases, foreign buyers purchase fewer U.S. goods and Americans buy more foreign goods. Exports fall and imports rise causing real GDP demanded to decrease. One of the reasons why AD is downward sloping.

flexible wages

When wages respond to changes in supply and demand and lead to the market clearing wage being set.

real-balances effect

a higher price level reduces the real value or purchasing power of the public's accumulated savings balances

vertical range

a section beyond the full employment point in which no further output occurs as price levels increase limitlessly

long run aggregate supply (LRAS)

aggregate supply that is dependent upon the resources in the economy and that can only be increased by improvements in the quantity and/or quality of factors of production.

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

consumer spending

household spending on goods and services from domestic and foreign firms.

government spending

includes spending by all levels of government on final goods and services

aggregate quantity supplied

quantity of output supplied at a particular price level

horizontal range

real output levels less than full-employment level. This range is horizontal and shows that the economy can grow without experiencing inflation

investment spending

spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories

intrest rate

the percentage of a sum of money charged for its use

aggregate supply

the total amount of goods and services in the economy available at all possible price levels

short run aggregate supply (SRAS)

the total amount of goods and services that all firms are willing and able to produce within the economy

aggregate demand

the total demand for final goods and services in an economy at a given time

real GDP supplied

total quantity that firms plan to produce during a given period

inflationary gap

when aggregate output is above potential output

increase/decrease in aggregate demand

when prices increase, the aggregate real GDP output demanded decrease, when prices decrease, the aggregate real GDP output demanded increase