Chapter 10: Bringing in the Supply Side- Unemployment and Inflation Flashcards
Too little spending leads to a __________________ gap
recessionary
- which also causes unemployment
Too much spending leads to a __________________ gap
inflationary
Stagflation
the simultaneous occurrence of high unemployment AND high inflation
Aggregate supply curve
shows, for each price level, the quantity of goods and services that all the nation’s businesses are willing to produce during a specified period of time, holding all other determinants of aggregate quantity supplied constant
The volume of goods and services that profit-seeking enterprises will provide depth on what?
1.) prices they obtain for their outputs
2.) on wages and other production costs
3.) on the capital stock
4.) on the state of technology
5.) etc.
The aggregate supply curve slopes _____ because firms normally can purchase labor and other inputs at prices that are fixed for some period of time. Thus, higher selling prices for outputs make production more attractive
upward
Nominal wage rate
account for 70% of all input costs because higher wage rates mean higher production costs and lower profits at any given selling prices
An increase in the nominal wage shifts the aggregate supply curve ______, meaning that the quantity supplied at any price level declines
inward
A decrease in the nominal wage shifts the aggregate supply curve ______, meaning that the quantity supplied at any price level increases
outward
The aggregate supply curve is shifted to the______ (inward) by an increase in the price of any input to the production process, and it is shifted to the ______ (outward) by any decrease
left; right
Productivity
Amount of output produced by a unit of input
Improvements in productivity shift the aggregate supply curve _____
outward
As the labor force grows or improves in quality, and as investment increases the capital stock, the aggregate supply curve shifts _______ to the right, meaning that more output can be produced at any given price level
outward
Inflation ______ the size of the multiplier
reduces
Any ________ in AD will push up the price level; higher prices, in turn will drain off some of the higher real demand by eroding the purchasing power of consumer wealth and by reducing net exports. Thus, inflation reduces the value of the multiplier below what is suggested by the oversimplified formula
increase
As long as the aggregate supply curve slopes upward, any outward shift of the aggregate demand curve will _______ the price level
increase
Inflationary gap
amount by which equilibrium real GDP exceeds the full employment level of GDP
Recessionary gap
amount by which the equilibrium level of real GDP falls short of potential GDP
When AD is low, the economy may get stuck with a _____________ gap for a long time
recessionary
rising nominal wages add to business costs, which shift the aggregate supply curve to the _____
left
Higher energy prices shift the economy’s aggregate supply curve _______
inward (to the left)
For any given growth rate of aggregate supply, a ______ growth rate of aggregate demand will lead to more inflation and faster growth of real output
faster
For any given growth rate of aggregate supply, a ______ growth rate of aggregate demand will lead to less inflation and slower growth of real output
slower
The economy experiences a favorable supply shock, as it did in the late 1990s, so the aggregate supply curve shifts ________ at an unusually rapid rate
outward
If fluctuations in economic activity emanate mainly from the supply side, higher rates of inflation will be associated with ______ rates of economic growth
lower
T/F Unfavorable supply shocks tend to push unemployment and inflation up at the same time
True
