Week 9: IS-MP Framework Flashcards
Another name for potential output?
“natural rate of output”
What is Aggregate expenditure?
the total amount of goods and services that people want to buy across the whole economy.
What is Macroeconomic equilibrium?
the quantity of output that buyers collectively want to purchase is equal to the quantity of output that suppliers collectively produce.
What does “Short run” refer to?
refers to the year-to-year ups and downs of the business cycle
What does “Long run” refer to?
changes in potential output.
What is the difference between short run and long run?
whether prices or policy have brought the economy back into equilibrium.
What does economic growth do?
It increases standards of living for the households in the economy.
What do business cycles do?
They create instability which can negatively impact standards of living
What is equilibrium GDP?
the level of GDP at the point of macroeconomic equilibrium
What is Potential GDP?
the economy’s highest sustainable level of production.
What does the IS Curve show?
relationship between real interest rates and the output gap.
IS curve name origins
Investment is the key form of interest-sensitive spending, and Saving is used to fund investment.
Monetary Policy
the process of setting interest rates in an effort to influence economic conditions.
risk-free interest rate
The interest rate on a loan that involves no risk
risk premium
the extra interest that lenders charge to account for the risk of loaning money i
