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Econ Chapter 10
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Economics
05/09/2012

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Term
quantity of real GDP supplied
Definition
total quantity of goods and services, valued in constant base year (2005) dollars, that firms plan to produce during a given period.
Term
Aggregate supply
Definition
relationship between the quantity of real GDP supplied and the price level. Different in long run and short run.
Term
Long-run aggregate supply
Definition
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. The quantity of real GDP supplied at full employment equals potential GDP and this quantity is the same regardless of the price level.
Term
Short-run aggregate supply
Definition
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.
Term
Aggregate demand
Definition
the relationship between the quantity of real GDP demanded and the price level.
Term
Why aggregate demand curve slopes down
Definition
Wealth effect and substitution effect
Term
Wealth effect
Definition
when the price level rises but other things remain the same, real wealth decreases.
Term
Substitution
Definition
When the price level rises and other things remain the same, interest rates rise.
Term
fiscal policy
Definition
the government's attempt to influence the economy by setting and changing taxes, making transfer payments, and purchasing goods and services.
Term
disposable income
Definition
aggregate income minus taxes plus transfer payments
Term
monetary policy
Definition
the Fed's attempt to influence the economy by changing interest rates and the quantity of money is called monetary policy.
Term
short-run macroeconomic equilibrium
Definition
occurs when the quantity of real GDP demanded quails of the quantity of real GDP supplied.
Term
long-run macroeconomic equilibrium
Definition
occurs when real GDP equals potential GDP - equivalently, when the economy is on its LAS curve.
Term
above full-employment equilibrium
Definition
an equilibrium in which real GDP exceeds potential GDP.
Term
Output gap
Definition
gap between real GDP and potential GDP
Term
Inflationary gap
Definition
When real GDP exceeds potential GDP, the output gap is called an inflationary gap.
Term
full-employment equilibrium
Definition
real GDP equals potential GDP
Term
below full-employment equilibrium
Definition
equilibrium in which potential GDP exceeds real GDP.
Term
Recessionary gap
Definition
the output gap when potential GDP exceeds real GDP
Term
stagflation
Definition
A combination of recession and inflation. mid 1970s and early 1980s
Term
Classical View
Definition
Believes that the economy is self-regulating and always at full employment. The term "classical" derives from the name of the founding school of economics that includes Adam Smith, DAvid Ricardo, and John Stuart Mill.
Term
New Classical View
Definition
Business cycle fluctuations are the efficient responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of technological change.
Term
Keynesian view
Definition
Believes that left alone, the economy would rarely operate at full employment and that to achieve and maintain full employment, active help from fiscal policy and momentary policy is required.
Term
new Keynesian view.
Definition
Holds not only that the money wage rate is sticky, but also that prices of goods and services are sticky.