Macro.Econ.201(Exam 2) Definitions

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(:If there are any typos or anything wrong with these, please let me know and I'll gladly correct them:)

Business Cycles

Recurring increases and decreases in the level of economic activity over periods of time.

Multiplier

The ratio of a change in GDP to an initial change in spending.

Equilibrium Real Output

The level of real GDP at which the aggregate demand curve and aggregate supply curve intersect.

Equilibrium Price Level

The price level at which the aggregate demand curve and aggregate supply curve intersect.

Productivity

A measure of real output per unit of input.

Determinants of Aggregate Supply

Factors that shift the aggregate supply curve when they change.

Long-Run Aggregate Supply Curve

The aggregate supply curve associated with a period of time in which both input and output prices are fully flexible.

Short-Run Aggregate Supply Curve

An aggregate supply curve relevant to a time period in which output prices are flexible, but input prices are sticky.

Immediate-Short-Run Aggregate Supply Curve

The aggregate supply curve associated with a period of time in which neither input nor output prices respond to changes in the level of spending or production.

Aggregate Supply

A schedule or curve that shows the total quanity of goods and services supplied (produced) at different price levels.

Exchange Rates

The prices of foreign currencies in terms of ones own currency.

Unemployment Rate

The percentage of the labor force unemployed.

Determinants of Aggregate Demand

Factors that shift the aggregate demand curve when they change.

Aggregate Demand

A schedule or curve that shows the total quanity of goods and services demanded (purchased) at different price levels.

Aggregate Demand-Aggregate Supply (AD-AS) Model

The macroeconomic model that uses aggregate supply and aggregate demand to determine and explain the price level and level of real domestic output.

Deflation

A decline in the general level of prices in the economy.

Nominal Interest Rate

The percentage increase in money that a borrower pays a lender.

Real Interest Rate

The percentage increase in purchasing power that a borrower pays a lender; the nominal interest rate less then expected rate of inflation.

Labor Force

Persons 16 years and older who are not in insituations and who are either employed or unemplyed and seeking work.

Sticky Prices

A situation where prices of goods and services are slow to respond to change in supply and demand.

Supply Shocks

Unexpected changes in the supply of goods and services.

Demand Shocks

Unexpected changes in the demand for goods and services.

Expansion

A generalized increase in output,income, and business activity.

Recession

A period of declining real GDP, accompanied by lower income and higher unemployment.

Shocks

Situations in which events don't meet expectations.

Real Income

The purchasing power of nominal income; the amount of goods and services that nominal income can buy.

Nominal Income

The number of dollars recieved as wages, rent ,interest, and profit.

Cost-Push Inflation

Increases in the price level (inflation) caused by sharp rises in the cost of key resources.

Demand-Pull Inflation

Increases in the price level (inflation) caused by excessive spending.

Consumer Price Index (CPI)

An index that compares the price of a market basket of consumer goods and services in one period with the price of the same 9or highly similar) market basket in a base period.

Inflation

A rise in the general level of prices in an economy.

GDP Gap

The negitive or positive difference between actual GDP and potential GDP.

Potential Output

The level of real GDP that would occur if there was full employment.

Cyclical Unemployment

Unemployment that is associated with the recessionary phase of a business cycle.

Structural Unemployment

Unemployment that is associated with a mismatch between available jobs and the skills or locations of those unemployed.

Frictional Unemployment

Unemployment that is associated with people searching for jobs or waiting to take jobs in the near future.

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