26 terms

Multiplier - Supply Shock

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Planned Investment Spending
the investment spending that firms intend to undertake during a given period. Planned investment spending may differ from actual investment spending due to unplanned inventory spending
Multiplier
The ratio of total change in real GDP caused by an autonomous change in aggregate spending to the size of that autonomous change
Consumption Function
An equation showing how an individual household's consumer spending caries with the household's current disposable income
Autonomous Consumer Spending
The amount of money a household would spend if it had no disposable income
Aggregate Consumption Function
The relationship for the economy as a whole between aggregate current disposable income and aggregate consumer spending
Inventories
Stocks of goods and raw materials held to satisfy future sales
Inventory Investment
The value of the change in total inventories held in the economy during a given period. This can be negative if inventories fall.
Unplanned Inventory Investment
Unplanned changes in inventories, which occur when actual sales are more or less than businesses expected; sales in excess of expectations result in negative unplanned inventory investment
Actual Investment Spending
The sum of planned investment spending and unplanned inventory investment
Aggregate Demand Curve
Shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world
Wealth Effect of a Change in the Aggregate Price Level
The effect of consumer spending caused by the change in the purchasing power of consumers' assets when aggregate price level changes.
Interest Rate Effect of a Change in the Aggregate Price Level
The effect on consumer spending and investment spending caused by a change in the purchasing power of consumers' money holdings when aggregate price level changes.
Fiscal Policy
The use of taxes, government transfers, or government purchases of goods and services to stabilize the economy
Monetary Policy
The central bank's use of changes in the quantity of money or the interest rate to stabilize the economy
Aggregate Supply Curve
A graphical representation that shows the relationship between the aggregate price level and the total quantity of aggregate output supplied
Nominal Wage
The dollar amount of any given wage paid
Sticky Wages
Nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages
Short Run Aggregate Supply Curve
A graphical representation of the relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed. It has a positive slope because a rise in the aggregate price level leads to a rise in profits
Long Run Aggregate Supply Curve
A graphical representation of the relationship between the aggregate price level and the quantity of aggregate output supplied if all prices were fully flexible. The curve is vertical because the aggregate price level has no effect on aggregate output in the long run
Potential Output
The level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible
AD-AS Model
The basic model used to understand fluctuations in aggregate output and the aggregate price level. It uses the aggregate demand curve and the aggregate supply curve together to analyze the behavior of the economy in response to shocks or government policy
Short Run Macroeconomic Equilibrium
The point at which the quantity of aggregate output supplied is equal to the quantity demanded
Short Run Equilibrium Aggregate Price Level
The aggregate price level in the short run macroeconomic equilibrium
Short Run Equilibrium Aggregate Output
The quantity of aggregate output produced in short run macroeconomic equilibrium
Demand Shock
Any event that shifts the aggregate demand curve
Supply Shock
An event that shifts the short run aggregate supply curve
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