Macroeconomics Chp. 12, 13, 14
Terms
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- The market in which goods and services are exchanged and in which the equilibrium level of aggregate output is determined
- Goods market
- The market in which financial instruments are exchaged and i which the equilibrium level of the interest rate is determined
- Money Market
- An increase in government spedinging or a reduction in net taxes aimed at increasing aggregate output
- Expansionary fiscal policy
- An increase in the money supply aimed at increasing aggregate output
- Expansionary monetary policy
- The tendency for increases in government spending to cause reduction in private investment spending
- Crowding-out effect
- A decrease in government spending or an increase in net taxes aimed at decreasing aggregate output
- contractionary fiscal policy
- A decrease in the money supply aimed at decreasing aggregate output
- Contractionary monetary policy
- The combination of monetary and fiscal policies in use at a given time
- Policy mix
- Interest rate Expectations of future sales Capital utilization rates Relative capital and labor costs
- Determinants of planned investment
- The total demand for goods and services in the economy
- Aggregate Demand
- A curve that shows the negative relationship between aggregate output and the price level.
- Aggregate demand curve
- Each point on the AD curve is a point at which both the goods market and the money market are in equilibrium
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- The change in consumption brought about by a change in real wealth that results from a change in the price level
- real wealth effect
- The total supply of all goods and services in an economy
- Aggregate supply
- A graph that show the relationship between the aggregate quantity of output supplied by all firms in an economy and the overall price level
- Aggregate Supply curve
- A change in costs that shifts the aggregate supply curve
- Cost shock/Supply shock
- The price level at which the aggregate demand and aggregate supply curves intersect
- Equilibrium price level
- The leel of aggregate output that can be sustained in the long run without inflation
- Potential output/potential GDP
- An increase in the overall price level
- Inflation
- Occurs when the overall price level continues to rise over some fairly long period of time
- Sustained inflation
- Inflation that is initiated by and increase in aggregate demand
- Demand-pull inflation
- Inflation caused by an increase in cost
- Cost-push/supply-side inflation
- Occurs when output is falling at the same time that prices are rising
- stagflation
- A period of very rapid increases in the price level
- Hyperinflation
- The number of people unemployed as a percentage of the labor force
- unemployment rate
- The portion of unemployment that is due to the normal working of the labor market
- Frictional unemployment
- The portion of unemploument that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries
- Structural unemployment
- The increase in unemployment that occurs during recessions and depressions
- Cyclical unemployment
- A graph that illustrates the amount of labor that households want to supply at each given wage rate
- Labor supply curve
- A graph that illustrates the amount of labor that firms want to employ each give wage rate
- Labor demand curve
- The downward rigidity of wages as an explanation for the existence fo unemplyment
- Sticky wages
- Workers are concerned about their wages relative to other workers in other firms and industries, they may be unwilling to accept a wage cut unless they know that all other workers are recieving similar cuts
- Relative-wage explanation of unemployment
- Emplyment contracts that stipulate worker\'s wages, usually for a period of 1 to 3o years
- Explicit contracts
- Conract provision that tie wages to changes in the cost of living. The greater the inflation rate, the more wages are raised
- cost-of-living adjustments
- The productivity of workers increases with the wage rate
- Efficiency wage theory
- Laws that set a floor for wage rates..minimum hourly rate for any kind of labor
- Minimum wage laws
- The percentage change in the price level
- Inflation rate
- A graph showing the relationship between the inflation rate and the unemployment rate
- Phillips Curve
- The unemployment that occurs as a normal part of the functioning of the economy. Sometimes taken as the sum of frictional unemployment and structural unemployment
- Natural rate of unemployment