Key terms - Aggregate supply/demand Flashcards
Above full-employment equilibrium
Real GDP is in excess of potential GDP.
Aggregate demand
The total amount of final goods and services produced in the UK that people, businesses, governments, and foreigners plan to buy.
Below full-employment equilibrium
Potential GDP exceeds real GDP.
Classical
The view that the economy is self-regulating and is always at full employment.
Disposable income
Aggregate income minus taxes, plus transfer payments.
Fiscal policy
The government’s attempt to influence the economy by setting and changing taxes, making transfer payments, and purchasing goods and services.
Full-employment equilibrium
Real GDP = potential GDP.
Inflationary gap
When real GDP exceeds potential GDP, the output gap is called an inflationary gap.
Keynesian
The view that, left alone, the economy would rarely operate at full employment; to maintain full employment active help from fiscal policy and monetary policy is required.
Long-run aggregate supply
The relationship between the quantity of real GDP supplied and the price level when the money wage rate changes in step with the price level to maintain full employment.
Long-run macroeconomic equilibrium
Occurs when real GDP equals potential GDP (i.e. when the economy is on its LAS curve).
Monetarist
The view that the economy is self-regulating and will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady.
Monetary policy
Changes in interest rates and in the quantity of money in the economy.
New classical
The view that the business cycle fluctuations are the efficient responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of technological change.
New Keynesian
Not only is the money wage rate sticky but prices of goods and services are also sticky; with a sticky price level, the short run aggregate supply curve is horizontal at a fixed price level.
