Modules 19-21 Flashcards
The aggregate supply curve and aggregate demand curve are used together to analyze economic fluctuations
AD-AS Model
Quantity of aggregate output supplied is equal to the quantity supplied
Short-run macroeconomic equilibrium
Aggregate price level in the short-run macroeconomic equilibrium
Short-run macroeconomic price level
Quantity of aggregate output produced in the short-run macroeconomic equilibrium
Short-run equilibrium aggregate output
An event that shifts the aggregate demand curve
Demand shock
Event that shifts the short-run aggregate supply curve
Supply shock
Combination of inflation and stagnation (or failing) aggregate output
Stagflation
When the point of short-run macroeconomic equilibrium is on the long-run aggregate supply curve
Long-run macroeconomic equilibrium
When aggregate out[ut is below potential output
Recessionary gap
When aggregate output is above potential output
Inflationary gap
Percentage difference between the actual aggregate output and potential output
Output gap
Economy is this when shocks to aggregate demand affect aggregate output in the short run, but not the long run
Self-correcting
The use of government policy to reduce the severity of recessions and rein in excessively strong expansions
Stabilization Policy
Government programs intended to protect families against economic hardship
Social Insurance
Increases aggregate demand. Includes an increase in government purchases of goods and services, a cut in taxes, and an increase in government transfers.
Expansionary fiscal policy
Reduces aggregate demand. Includes a reduction in government purchases of goods and services, an increase in taxes, and a reduction in government transfers.
Contractionary Fiscal Policy
Factor by which a change in tax collections changes real GDP
Tax Multiplier
Factor by which a change in both spending and taxes changes real GDP
Balanced Budget Multiplier
Taxes that don’t depend on taxpayer income
Lump-sum taxes
Government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contractions and automatically contractionary when the economy expands.
Automatic stabilizers
Fiscal policy that is the result of deliberate actions by policy makers rather than rules
Discretionary fiscal policy
