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Chapter 29 Terms
Terms and definitions
16
Economics
12th Grade
10/10/2010

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Term
aggregate demand-aggregate supply (AD-AS) model
Definition
the macroeconomic model that uses aggregate demand and aggregate supply to determine and explain the price level and the real domestic output
Term
aggregate demand
Definition
a schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels
Term
real-balances effect
Definition
the tendency for increaess in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level
Term
interest-rate effect
Definition
the tendency for increase in the price level to increase the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases)
Term
foreign purchases effect
Definition
the inverse relationship between the net exports of an economy and its price level rleative to foreign price levels
Term
determinants of aggregate demand
Definition
factors such as conumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve
Term
aggregate supply
Definition
a schedule or curve showing the total quantity of goods and services supplied (produced) at different price levels
Term
immediate-short-run aggregate supply curve
Definition
an aggregate supply curve for which real output, but not the price level, changes when the aggregate demand curves shifts; a horizontal aggregate supply curve that implies an inflexible price level
Term
short-run aggregate supply curve
Definition
an aggregate supply curve relevant to a time period in which input prices (particularly nominal wages) do not change in response to changes in the price level
Term
long-run aggregate supply curve
Definition
the aggregate supply curve associated with a time period in which input prices (especially nominal wages) are fully responsive to changes in the price level
Term
determinants of aggregate supply
Definition
factors such as input prices, productivity, and the legal-institutaionl environment that, if they change, shift the aggregate supply curve
Term
productivity
Definition
a measure of average output or real output per unit of input
Term
equilibrium price level
Definition
the price level at which the aggregate demand curve intersects the aggregate supply curve
Term
equilibrium real output
Definition
the GDP at which the total quantity of final goods and services purchased (aggregate expenditures) is equal to the total quantity of final goods and services producted ( the real domestic output) ; the real domestic output at which the aggregate demand curve intersects the aggregate supply curve
Term
menu costs
Definition
the reluctance of firms to cut prices during recessions (that they think will be short lived) because of the costs of altering and communicating their price reductions
Term
efficiency wages
Definition
a wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover
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