| A | B |
|---|
| aggregate | all prices and all quantities added togethor |
| aggregate demand | The relationship between the total quantity of goods and services demanded (from all the four sources of demand) and the price level, all other determinants of spending unchanged. |
| aggregate demand curve | A graphical representation of aggregate demand. |
| aggregate supply | the amount of goods and services (real GDP) that firms will produce in an economy at different price levels. |
| autonomous consumption | Consumers will spend a certain amount no matter what, regardless of their income. |
| change in actions of the government | Taxes on producers, subsidies for domestic producers, government regulations. |
| change in aggregate demand (shifters) | Change in the aggregate quantity of goods and services demanded at every price level. |
| change in productivity | Typically related to an increase in technological resources and/or education |
| change in resources | Prices of domestic and imported resources |
| change in short-run aggregate supply (shifters) | A change in the aggregate quantity of goods and services supplied at every price level in the short run. |
| change in the aggregate quantity of goods and services | Movement along an aggregate demand curve. |
| Classical Economics | A change in AD will not change output even in the short run because prices of resources (wages) are very flexible. AS is vertical so AD canÕt increase without causing inflation. |
| contractionary policy | Laws that reduce inflation, decrease GDP (Close a Inflationary Gap) |
| crowding-Out effect | Government spending might cause unintended effects that weaken the impact of the policy. |
| deficit spending | when the governmentÕs expenditures exceeds its revenue. |
| deflation | gradual decrease in prices over time |
| diminishing marginal utility | Òthe marginal utility of good X will fall as the consumer consumes more of itÓExcerpt From: Libby Rittenberg. ÒPrinciples of Economics Version 2.1.Ó iBooks. |
| discretionary fiscal policy | Congress creates a new bill that is designed to change AD through government spending or taxation |
| disposable income | personal income after taxes |
| dissaving | income less than autonomous spending |
| economic growth | Òlong-run process that occurs as an economyÕs potential output increases.ÓExcerpt From: Libby Rittenberg. ÒPrinciples of Economics Version 2.1.Ó iBooks. |
| equilibrium | intersection between AD, SRAS and LRAS. |
| exchange rate | The price of a currency in terms of another currency or currencies. |
| expansionary policy | Laws that reduce unemployment and increase GDP (Close a Recessionary Gap) |
| fiscal policy | The use of government purchases, transfer payments, and taxes to influence the level of economic activity. |
| foreign trade effect | When U.S. price level rises, foreign buyers purchase fewer U.S. goods and Americans buy more foreign goods |
| full-employment | Natural rate of unemployment = 4-6% unemployment, happens at LRAS. |
| inflation | gradual increase in prices over time. |
| inflationary expectations | If producers expect higher prices in the future, workers will demand higher wages and costs will increase. |
| inflationary gap | The gap between the level of real GDP and potential output, when real GDP is greater than potential. |
| interest rate effect | The tendency for a change in the price level to affect the interest rate and thus to affect the quantity of investment demanded. |
| international trade effect | The tendency for a change in the price level to affect net exports. |
| Keynesian Theory | A decrease in AD will lead to a persistent recession because prices of resources (wages) are NOT flexible. Increase in AD during a recession doesnÕt cause inflation |
| long run | In macroeconomic analysis, a period in which wages and prices are flexible. |
| long-run aggregate supply (LRAS) curve | A graphical representation that relates the level of output produced by firms to the price level in the long run. |
| marginal propensity to consume | How much people consume rather than save when there is a change in income. |
| marginal propensity to save | How much people save rather than consume when there is a change in income. |
| monetary policy | The use of central bank policies to influence the level of economic activity. |
| multiplier | The ratio of the change in the quantity of real GDP demanded at each price level to the initial change in one or more components of aggregate demand that produced it. |
| multiplier effect | An initial change in spending will set off a spending chain that is magnified in the economy. |
| national debt | the accumulation of all the budget deficits over time. |
| net export effect | International trade reduces the effectiveness of fiscal policies. |
| nondiscretionary fiscal policy | Permanent spending or taxation laws enacted to work counter cyclically to stabilize the economy |
| nonintervention policy | A policy choice to take no action to try to close a recessionary or an inflationary gap, but to allow the economy to adjust on its own to its potential output. |
| output per capita | Real GDP per person. |
| political motivated policies | Politicians may use economically inappropriate policies to get reelected. |
| potential output | GDP in the Long Run Aggregate Supply = full employment |
| problems of timing | Recognition Lag- Congress must react to economic indicators before itÕs too late; Administrative Lag- Congress takes time to pass legislation; Operational Lag- Spending/planning takes time to organize and execute |
| productivity | The amount of output per worker. |
| R.A.P | Resources, Government Action, |
| recessionary gap | The gap between the level of real GDP and potential output, when real GDP is less than potential. |
| rule of 72 | ÒA variableÕs approximate doubling time equals 72 divided by the growth rate, stated as a whole number.ÓExcerpt From: Libby Rittenberg. ÒPrinciples of Economics Version 2.1.Ó iBooks. |
| short run | In macroeconomic analysis, a period in which wages and some other prices are sticky and do not respond to changes in economic conditions. |
| short-run aggregate supply (SRAS) curve | A graphical representation of the relationship between production and the price level in the short run. |
| stabilization policy | A policy in which the government or central bank acts to move the economy to its potential output. |
| sticky price | A price that is slow to adjust to its equilibrium level, creating sustained periods of shortage or surplus. |
| Supply Shock | positive and negative supply shock by unnatural changes in the economic market. |
| wealth effect | The tendency for a change in the price level to affect real wealth and thus alter consumption. |
