Economics quiz
Negative demand shock
A negative demand shock leads to a lower aggregate price level, lower aggregate output & increased unemployment
Negative supply shock
A negative supply shock leads to lower output, a higher aggregate price level & increased unemployment
Positive demand shock
A positive demand shock leads to a higher aggregate price level, higher output & decreased unemployment
Positive supply shock
A positive supply shock leads to a higher aggregate output, a lower aggregate price level & decreased unemployment
Contractionary fiscal policy
Policy designed to decrease aggregate demand Has decrease in government spending, increase in taxes, decrease in government transfers
Expansionary fiscal policy
Policy designed to increase aggregate demand Has increase in government spending, decrease in taxes, increase in government transfers (welfare & benefits payment)
Sras- vertical range
The economy is at full productive capacity; producers can no longer find unemployed/unused factors of production
Potential real GDP
The output produced when there is full employment
Inflationary gap
When aggregate output is above potential output
Recessionary gap
When aggregate output is below potential aggregate output
Demand shock
A sudden surprise event that temporarily increases or decreases demand for goods or services This type of shock can come from tax cuts or increases, changes in expectations, loosening or tightening of the money, and increases or decreases in government spending
Supply shock
A supply shock is an unexpected event that changes the supply of a product or commodity, resulting in a change in its price
Classical economics
An economic theory that emphasizes long-run equilibrium Classical economists usually support free markets with minimal government restrictions
Keynesian economics
An economic theory that holds prices constant in the short-run, and emphasizes potential fluctuations in economic output Keynesians usually support strong government intervention
Shifts in aggregate supply
Anything that makes people more productive ex: increase in labor supply, capital stock, resources and tech
Short run aggregate suppy
As the price level increases, production increases, sras curve slopes upward + has 3 distinct region
Shifts in aggregate demand
Generally anything that causes people to spend more will increases aggregate demand ex:increase in income, increase in government spending, decrease in interest rate
Fiscal policy
Government taxation and spending policies that influences macroeconomic conditions
Long- run aggregate supply (lras)
In the long run, aggregate supply is fixed
Long-run macroeconomic shifts
In the long-run, changes in aggregate demand can only change the price level, not GDP A change in aggregate supply is required to change any GDP in the long-run
Sras- middle range
In this range firms produce more leading to a rising price level; the economy mostly operates in this region In some cases GDP will go beyond full employment Per-unit production costs rise and firms demand higher product prices
Sticky prices
Prices are sticky bc producers are stuck with certain costs (ex: wage, contracts, fixed resource prices, etc.) bc of this, prices adjust sloely
Sras- horizontal range
The horizontal part of the sras represents tines of recession, when there are many unused factors of production Along this range firms can increase production without raising prices, is output falls there will be no decrease in price
Aggregate demand
The total amount of goods and services consumers are willing to buy at a given price level, as price level increases, thr production demanded decreases
Aggregate supply
The total amount of goods and services firms choose to produce at each price level
--Full employment/ Y
The unemployment rate in the absence of cyclical unemployment
Long-run macroeconomic equilibrium
Where the short-run macroeconomic equilibrium is on the lras curve
Short run macroeconomic equilibrium
Where the sras and ad curves intersect (where real output demanded is equal to real output supplied)