Chapter 16 Flashcards
aggregate supply
the total value of goods and services that all firms would produce in a specific period of time at various price levels
the aggregate supply curve
shows the amount of real GDP that could be produced at various price levels
aggregate demand
the total quantity of goods and services demanded at different price levels
the aggregate demand curve
a graph showing the quantity of real GDP that would be purchased at each possible price level in the economy
macroeconomic equilibrium
the level of real GDP consistent with a given price level, as determined by the intersection of the aggregate supply and demand curves
the economic costs of economic instability (4)
- stagflation
- the GDP gap
- the misery index
- uncertainty
stagflation
a period of stagnant growth combined with inflation
the GDP gap
the difference between the actual GDP and the potential GDP that could be produced if all resources were fully employed
the social costs of economic instability (3)
- wasted resources
- political instability
- crime and family values
the misery index
the sum of the monthly inflation and unemployment rates
What can effect the aggregate supply curve?
Change in cost of production for the individual firm
^ cost of production = v aggregate supply
v cost of production = ^ aggregate supply
What can effect the aggregate demand curve?
Change in prices
^ price = v aggregate demand
v price = ^ aggregate demand
fiscal policy
the federal government’s attempt to stabilize the economy through taxing and government spending
Keynesian Economics
a set of actions designed to lower unemployment by stimulating aggregate demand
The Keynesian Framework
GDP = C + I + G + F
multiplier
change in overall spending caused by a change in investment spending
The 2 Different Roles of Government in Demand-side Policies
- direct role –> undertake its own spending to offset the decline in spending by businesses
- indirect role –> lowering taxes and enacting other measures to encourages businesses and consumers to spend more
accelator
the change in investment spending caused by a change in total spending
automatic stabilizers
programs that automatically trigger benefits if changes in the economy threaten income
Supply-Side Economics
policies designed to stimulate output and lower unemployment by increasing production rather than demand
What kind of role does the government have in Supply-Side Economics?
A small one, reduced number of federal agencies
Laffer Curve
a hypothetical relationship between federal tax rates and tax revenues
Monetarism
places primary importance on the role of money and its growth; neither demand-side nor supply-side places importance on it
