Principles of economics ch. 33,34

Retail sales and employment

Fall during a recession

Increases so aggregate demand shifts right

When taxes decrease, consumption

Quantity of output on the horizon. Output can be measured by real gdp

Aggregate demand and aggregate supply graph has

The quantity of goods and services households, firms, the government and customer abroad want to buy

Aggregate demand includes

Consumption investment and net exports

Changes in the price level affect which components of aggregate demand

As it relates to the quantity of goods and services that buyers want to buy is called the aggregate supply curve

Curve that shows the quantity of goods and services that firms produce and sell

More so they can buy more

Decrease in the price level makes the dollar people hold worth

Short and long run

Fiscal policy affects the economy

Political system of checks and balances that slows down the process of implementing fiscal policy

Lag problem associated with fiscal policy is due mostly to

During a recession

Increased layoffs and firings, higher rate of bankruptcy, increased claims for unenployment insurance

As the price level increases the intrest rate rises so spending falls

Intrest rate effect that helps explain the slope of the add regard demand curve

The intrest rate effect

Lower price level leads to lower money demand; lower money demand leads to lower intrest rates; a lower intrest rate increases t he quantity of goods and services demanded

Aggregate demand right

Made to feel wealthier then it would have shifted

Multiplier effect

Makes aggregate demand shift further to the right than the amount by which government expenditures increase

Recession

Mild period of falling income and rising unenployment

Primarily affects aggregate demand

Most economist believe that fiscal policy

Funds in a checking account

Most liquid asset

Price level

NOT a determinant of the long run level of real gdp

Minimum wage

NOT automatic stabilizer

Intrest rate on bonds

Opportunity cost of holding money

Unenployment

Rises during a recession

Households decide to save a larger fraction of their income

Shifts aggregate demand to the left

Increase in government expenditures but no change in price level

Shifts aggregate demands rightward

Increase in capital stock and technological improvements

Shifts the long run aggregate supply curve to the right

Raise expenditures during recessions and lower expeditures during expansions

Stable subsidizes tend to

Vertical in the long run and slopes upward in the shortrun

The aggregate suply curve is

Real gdp

Used to monitor short run changes in economic activity

Because of contracts social norms and notions of fairness

Wages tend to be sticky

Increase in labor force, capital stock and advances in technological knowledge

Why production rises in most years