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Intermediate Macro Exam 3 (ch. 7 & 10-12, 14)
Terms in this set (38)
natural rate of unemployment
the average rate of unemployment around which the economy fluctuates
unemployment caused by the time it takes workers to search for a job
a change in the composition of demand among industries or regions
a government program that partially protects workers' incomes when they become unemployed
the failure of wages to adjust to a level at which labor supply equals labor demand
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
the workers who are already employed
an above-market wage that a firm pays to increase workers' productivity
individuals who would like to work but have given up looking for a job
the negative relationship between unemployment and gdp
variables that tend to flucutate in advance of the economy
the relationship between the quantity of output demanded and the aggregate price level. tells us the quantity demanded at a specific price point
The relationship between the quantity of goods and services supplied and the price level
exogenous events that shock the environment
A shock that shifts the aggregate demand curve
A shock that shifts the aggregate supply curve
policy actions aimed at reducing the severity of short-run economic fluctuations
A model of aggregate demand that shows what determines aggregate income for a given price level by analyzing the interaction between the goods market and the money market
Stands for "investment" and "saving"
- Represents what's going on in the market for goods & services
Stands for "liquidity" and "money"
- Represents what's happening to the supply & demand for money
a diagram that identifies income-expenditure equilibrium as the point where the planned aggregate spending line crosses the 45-degree line.
1/(1-MPC), tells us how much income rise in response to a $1 increase in gov purchases
-MPC/(1-MPC) The factor by which a change in tax changes RGDP
theory of liquidity prefernce
John Maynard Keynes' theory that the interest rate adjusts to bring the money market into equilibrium
Monetary transmission mechanism
The channels by which a change in the demand for or supply of money leads to a shift of the aggregate demand curve.
As prices fall and real money balances rise, consumers should feel wealthier and spend more
describes the effects of unexpected falls in the price level
This model emphasizes that firms do not instantly adjust the prices they charge in response to changes in demand.
The model of aggregate supply emphasizing that individuals do not always know the overall price level because they cannot observe the prices of all goods and services in the economy.
a curve that shows the short-run trade-off between inflation and unemployment
The assumption that people make forecasts of future values of a variable using only past values of the variable.
low unemployment pulls the inflation rate up
When prices rise due to an increase in the cost of production.
percentage points of annual output lost per 1 percentage point reduction in inflation
the theory that people optimally use all the information they have, including information about government policies, when forecasting the future
natural rate hypothesis
the claim that unemployment eventually returns to its normal, or natural, rate, regardless of the rate of inflation
the long-lasting influence of history, such as on the natural rate of unemployment
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