Term
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Definition
| a period of declining real incomes and rising unemployment |
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Term
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Definition
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Term
| Fact 1 on economic fluctuations |
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Definition
| economic fluctuations are irregular and unpredictable |
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Term
| Fact 2 on economic fluctuations |
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Definition
| most macroeconomic quantities fluctuate together |
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| Fact 3 on economic fluctuations |
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Definition
| as output falls, unemployment rises |
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Term
| most economists believe that classical theory describes |
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Definition
| the world in the long run but not in the short run |
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Term
| model of aggregate demand and aggregate supply |
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Definition
| the model that most economists use to explain short-run fluctuations in economic activity around its long-run trend |
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Term
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Definition
| a curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level |
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Term
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Definition
| a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level |
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Term
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Definition
| Consumption + investment + government purchases + net exports |
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Term
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Definition
| a decrease in price level raises the real value of money and makes consumers wealthier, which in turn encourages them to spend more. The increase in consumer spending means a larger quantity of goods and services demanded. Conversely, an increase in the price level reduces the real value of money, in turn reducing wealth, consumer spending, and the quantity of goods and services demanded |
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Term
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Definition
| a lower price level reduces the interest rate, encourages greater spending on investment goods, and thereby increases the quantity of goods and services demanded. Conversely, a higher price level raises the interest rate, reducing investment spending and the quantity of goods and services demanded |
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Term
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Definition
| When a fall in U.S. price level causes U.S. interest rates to fall, the real value of the dollar declines in foreign exchange markets, and this depreciation stimulates U.S. net exports and thereby increases the quantity of goods and services demanded. Conversely, when the U.S. price level rises and causes the U.S. interest rates to rise, the real value of the dollar increases, and this appreciation reduces U.S. net exports and the quantity of goods and services demanded. |
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Term
| three reasons a fall in price level increases the quantity of goods and services demanded |
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Definition
| 1. consumers are wealthier, which stimulates the demand for consumption goods. 2. interest rates fall, which stimulates the demand for investment goods. 3. currency depreciates, which stimulates the demand for net exports |
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Term
| Why might aggregate demand curve shift? |
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Definition
| changes in consumption, changes in investment, changes in government purchases, and changes in net exports |
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Term
| In the LR, an economy's production of goods and services (real GDP) depends on its supplies of ___, ____, ____ and on ____. |
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Definition
| supplies of labor, capital, natural resources, and on the available technology used to turn these factors of production into goods and services |
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Term
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Definition
| the production of goods and services that an economy achieves in teh long run when unemployment is at its normal rate |
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Term
| Why might LR aggregate supply curve shift? |
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Definition
| changes in labor, changes in capital, changes in natural resources, and changes in technological knowledge |
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Term
| Short-run fluctuations in output and the price level should be viewed as |
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Definition
| deviations from the continuing LR trends of output growth and inflation (p.755) |
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Term
| The quantity of output supplied deviates from its LR, or "natural", level when the |
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Definition
| actual price level in the economy deviates from the price level that people expected to prevail. |
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Term
| Quantity of output supplied = |
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Definition
| natural rate of output + a(actual price level - expected price level) |
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Term
| An increase in the expected price level reduces the quantity of goods and services supplied and shifts the short run aggregate supply curve to the left. A decrease in the expected price level |
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Definition
| raises the quantity of goods and services supplied and shifts the SR aggregate supply curve to the right |
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Term
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Definition
| a period of falling output and rising prices |
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