AS-AD model Flashcards
Output fluctuations are movements in output around its trend, what are these sometimes called?
Business cycles
Exogenous changes in AS or AD are called …….
Shocks
A shock that affects AS is called a
Supply shock
A shock that affects AD is called
A demand shock
A ______ is usually defined by a period in which there are two consecutive declines in real GdP
Recession
Each shock has dynamic effects. These are called the _________ of the shock
Propagation mechanism
Stabilisation policy seeks to
Dampen the business cycle by keeping output and employment close to their natural rate
What is meant by ‘the neutrality of money’?
An increase in the money supply has no effect on output in the medium run
In the aggregate demand relation, an increase in the price level causes output to decrease because of its effect on
The money market and subsequently investment
In the aggregate supply relation, the current price level depends on
The expected price level
An increase in the price of oil will cause what to happen in the medium run?
An increase in the unemployment rate
A monetary expansion will cause:
No change in the real wage in the medium run
An increase in unemployment benefits will cause
No change in the real wage in the medium run
As product markets become more competitive and the markup decreases, what will occur?
A decrease in the natural rate of unemployment, a decrease in the price level, a decrease in the interest rate
A reduction in taxes will cause:
An increase in consumption in the medium run
