Chapter 27 - Aggregate Demand in the Goods and Money Markets Flashcards
goods market
The market in which goods and services are exchanged and in which the equilibrium level of aggregate output is determined.
money market
The market in which financial instruments are exchanged and in which the equilibrium level of the interest rate is determined.
expansionary fiscal policy
An increase in government spending or a reduction in net taxes aimed at increasing aggregate output (income) (Y).
expansionary monetary policy
An increase in the money supply aimed at increasing aggregate output (income) (Y).
crowding-out effect
The tendency for increases in government spending to cause reductions in private investment spending.
interest sensitivity or insensitivity of planned investment
The responsiveness of planned investment spending to changes in the interest rate. Interest sensitivity means that planned investment spending changes a great deal in response to changes in the interest rate; interest insensitivity means little or no change in planned investment as a result of changes in the interest rate.
contractionary fiscal policy
A decrease in government spending or an increase in net taxes aimed at decreasing aggregate output (income) (Y).
contractionary monetary policy
A decrease in the money supply aimed at decreasing aggregate output (income) (Y).
policy mix
The combination of monetary and fiscal policies in use at a given time.
aggregate demand (AD) curve
A curve that shows the negative relationship between aggregate output (income) and the price level. Each point on the AD curve is a point at which both the goods market and the money market are
in equilibrium.
real wealth, or real balance, effect
The change in consumption brought about by a change in real wealth that results from a change in the price level.
