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