Term
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Definition
| Short-run economic fluctuations |
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Term
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Definition
the separation of variables into two groups:
Real – quantities, relative prices
Nominal – measured in terms of money |
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Term
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Definition
| Changes in the money supply affect nominal but not real variables |
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Term
| Nominal Wages are what in the short-run? |
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Definition
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Term
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Definition
| period of falling outputs and falling prices |
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Term
| Fluctuation in the economy are often called? |
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Definition
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Term
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Definition
| shows quantity of goods and services that household, firms and govs and customers wan to buy at each price level |
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Term
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Definition
| shows goods and services that firms want to sell at each price level |
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Term
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Definition
| changes in fiscal policy that stimulate agg demand when economy goes into recession, without policymakers having to take any deliberate action; ex: tax system |
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Term
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Definition
| the setting of the level of govt spending and taxation by govt policymakers |
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Term
| What happens in an expansionary fiscal policy |
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Definition
an increase in G and/or decrease in T
The AD curve shifts to the right |
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Term
| What happens in a Contractionary fiscal policy |
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Definition
a decrease in G and/or increase in T
the AD curve shifts to the left |
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Term
| What are the three reasons why the AD curve slopes downward |
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Definition
The wealth effect
The interest-rate effect
The exchange-rate effect |
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Term
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Definition
| lower prices raises the real value of households' money holding |
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Term
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Definition
| lower price level reduce the amount of money people want to hold, as people lend out excess money, interest rate fall |
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Term
| What are the three reason the SRAS curve slopes upwards |
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Definition
Sticky Price
Sticky Wage
Misconception |
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Term
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Definition
| when lower price level reduces interest rate, investors move some of their fund overseas in search of higher returns; domestic currency will fall, domestic goods become less expensive |
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Term
| theory of liquidity preference |
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Definition
| Keynes's theory that the interest rate adjusts to bring money money supply and money demand into balance |
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Term
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Definition
| shows the short-run trade-off between inflation and unemployment |
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Term
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Definition
| the claim that unemployment eventually returns to its normal or “natural” rate, regardless of the inflation rate |
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Term
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Definition
| the additional shifts in aggregate demand that result when expansionary fiscal policy increases consumer spending |
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Term
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Definition
| positive feedback from demand to investment |
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Term
| marginal propensity to consume |
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Definition
| the fraction of extra income that a household consumes rather than saves |
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Term
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Definition
| an event that directly alters firms’ costs and prices, shifting the AS and PC curves |
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Term
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Definition
| offset in aggregate demand results when an expansionary fiscal policy raises the interest rate and thereby reduces investment spending |
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Term
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Definition
| a reduction in the inflation rate |
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Term
| How does the Fed reduce inflation |
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Definition
| the fed must slow the rate of money growth, which will reduce agg demand |
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Term
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Definition
| percentage points of annual output lost per 1 percentage point reduction in inflation |
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Term
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Definition
| a theory according to which people optimally use all the information they have, including info about govt policies, when forecasting the future |
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Term
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Definition
| measures how people expect the overall price level to change |
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Term
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Definition
| the claim that unemployment will eventually return to its natural rate, regardless of the inflation rate |
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