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