Chapter 9 Flashcards
Business cycles are:
Economic fluctuations, movements of GDP away from potential output, and periods in which real GDP grows too slow or top fast
In the macroeconomic short run prices (do/don’t) fully adjust to changes in demand
Do not
A period when economic growth is negative for at least six months is called a
Recession
Economic measure that is countercyclical
Unemployment
Real business cycle theory emphasizes the role of
Technology shocks as a cause of economic fluctuations
Suppose consumer tastes and preferences shift from a desire to go skiing to an interest in snowboarding. If skiis and snowboards are produced by dif firms, the firms that produce snowboards will experience
A rise in prices, which will lead them to increase production and increase number of workers
What is a problem with the price system that can lead to a breakdown in the coordination of economic activity?
Prices can be slow to adjust
Prices for industrial commodities such as steel Rods or machine tools are
Custom and sticky prices
If prices are sticky, economic activity (will/won’t) be coordinated efficiently
Wont
The short run in macroeconomics is the period in which
Prices don’t change, or don’t change very much, and demand determines output
Keynesian economics means that
Demand determines output in short run
Aggregate demand refers to relationship between
The price level and the quantity of real GDP demanded
Increase of GDP in France equals
An increase in aggregate demand
Long run: decrease in money supple
No change in output and decrease in prices
______________________ influences the position of the long run aggregate supply curve
The level of full employment output
Short run Keynesian aggregate supply/ increase in gov spending
Increase in output and slight increase in prices
Keynesian agg supply curve: reflects idea in short run prices are _________ and firms _______________
Sticky; adjust production to meet demand
As purchasing power of money changes, aggregate demand curve is affected in 3 different ways
Wealth effect, interest rate effect, international trade effect
Wealth effect
The increase in spending that occurs because the real value of money increase when the price level dalls
Interest rate effect
With a given supply of money in economy, a lower price level wil lead to lower interest rates
International trade effect
Lower price level equals domestic goods become cheaper relative to foreign goods do the demand for domestic goods will increase
