Chap 12 and 13 Flashcards
tax increases or cuts in government spending designed to decrease aggregate demand and reduce inflationary pressures
contractionary fiscal policy
downward wage and price flexibility requires perfect information about the level of lower compensation acceptable to other laborers and market participants
coordination argument
income after taxes
disposable income
tax cuts or increases in government spending designed to stimulate aggregate demand and move the economy out of recession
expansionary fiscal policy
Keynesian concept that asserts that a change in autonomous spending causes a more than proportionate change in real GDP
expenditure multiplier
equilibrium at a level of output above potential GDP
inflationary gap
occurs when what happens at the macro level is different from and inferior to what happens at the micro level
macroeconomic externality
costs firms face in changing prices
menu costs
the tradeoff between unemployment and inflation
Phillips curve
the amount of goods and services actually being sold in a nation
real GDP
equilibrium at a level of output below potential GDP
recessionary gap
a situation where wages and prices do not fall in response to a decrease in demand, or do not rise in response to an increase in demand
sticky wages and prices
the theory that people look to past experience and gradually adapt their beliefs and behavior as circumstances change
adaptive expectations
a future rate of inflation that consumers and firms build into current decision making
expected inflation
the philosophy that, in the long run, the business cycle will fluctuate around the potential, or full-employment, level of output
neoclassical perspective
