Chapter 11

Question 0

Money illusion

Answer 0

Reacting to changes in money prices rather than relative prices. If a worker whose wages double when the price level also doubles thinkers he or she is better off, that worker is suffering from money illusion

Question 1

Say’s law

Answer 1

A dictum of economist J.B. Say that supply creates its own demand; producing goods and services generates the means and the willingness to purchase other goods and services

Question 2

Keynesian short-run aggregate supply curve

Answer 2

The horizontal portion of the aggregate supply curve in which there is excessive unemployment and unused capacity in the economy

Question 3

Short-run aggregate supply curve

Answer 3

The Relationship between total planned economy wide production and the price level in the short run, all other things held constant. If prices adjust incompletely in the short run, the curve is positively sloped

Question 4

Aggregate demand shock

Answer 4

Any event that causes the aggregate demand curve to shift inward or outward

Question 5

Aggregate supply shock

Answer 5

Any event that causes the aggregate supply curve to shift inward or outward

Question 6

Recessionary gap

Answer 6

The gap that exists whenever equilibrium real GDP per year is less than full – employment real GDP as shown by the position of the long – run aggregate supply curve

Question 7

Inflationary gap

Answer 7

The gap that exists whenever equilibrium real GDP per year is greater than full – employment real GDP as shown by the position of a long – run aggregate supply curve

Question 8

Demand– Pull inflation

Answer 8

Inflation caused by increases in aggregate demand not matched by increases in aggregate supply

Question 9

Costs – push inflation

Answer 9

Inflation caused by decreases in short – run aggregate supply