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Study cards for Chapter 11 of Paul Krugman and Robin Wells Macroeconomics (Third Edition)

The Wealth Effect

The effect of consumer spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers' assets

Reasons for Shifts in the Aggregate Demand Curve

1. Changes in expectations
2. Changes in wealth
3. Size of the existing stock of physical capital
4. Government policies (Fiscal and Monetary)

Long-Run Macroeconomic Equilibrium

A situation in which short-run macroeconomic equilibrium is on the long-run aggregate supply curve

Recessionary Gap

Short-run equilibrium output is below potential output

Aggregate Supply Curve

Shows the relationship between the economy's aggregate price level and the total quantity of final goods and services, or aggregate output, producers are willing to supply

Reasons for Shifts in the Short-Run Aggregate Supply Curve

1. Changes in the prices of commodities
2. Changes in nominal wages
3. Changes in productivity

Inflationary Gap

When short-run equilibrium output is above potential output ( long-run aggregate supply [LRAS])

Short-Run Macroeconomic Equilibrium

The point where the aggregate output supplied is equal to the quantity demanded by households, businesses, the government, and the rest of the world

Short-Run Equilibrium Aggregate Price Level

The price at which short-run macroeconomic equilibrium occurs

Short-Run Equilibrium Aggregate Output

The output supplied at short-run macroeconomic equilibrium

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