| Term | Definition |
|---|---|
| aggregate demand | The total quantity of goods and services demanded across an entire economy at different price levels. |
| Aggregate Demand curve | A graph showing the relationship between the price level and the quantity of goods and services demanded in an economy at all price levels. |
| aggregate output | The total quantity of goods and services produced in an economy, typically measured as real GDP. |
| aggregate supply | The total quantity of goods and services that producers are willing and able to supply at various price levels. |
| consumption | Spending by households on goods and services, which is affected by changes in tax revenues and disposable income. |
| exchange rate effect | The change in net exports that results from changes in the exchange rate caused by changes in the price level. |
| government spending | Government expenditures that can affect the demand for loanable funds and interest rates. |
| interest rate effect | The change in investment and consumption spending that results from changes in interest rates caused by changes in the price level. |
| investment | Spending by firms on capital goods and equipment, a component of aggregate demand. |
| macroeconomic shocks | Unexpected events or changes that significantly impact the overall economy, affecting output, employment, and price levels. |
| net exports | The difference between a country's total exports and total imports; a component of aggregate demand. |
| price level | The average of all prices of goods and services produced in an economy, typically measured by price indices like the CPI. |
| quantity of goods and services demanded | The total amount of final goods and services that buyers are willing and able to purchase at a given price level. |
| real wealth effect | The change in consumer spending that results from changes in the real value of wealth caused by changes in the price level. |
| shift of the AD curve | A change in aggregate demand at every price level, caused by changes in consumption, investment, government spending, or net exports independent of price level changes. |
| Term | Definition |
|---|---|
| aggregate demand | The total quantity of goods and services demanded across an entire economy at different price levels. |
| autonomous expenditures | Spending that is independent of income levels and initiates changes in total expenditures and output. |
| disposable income | Income remaining after taxes that consumers can spend or save. |
| expenditure multiplier | A measure that quantifies the size of the change in aggregate demand resulting from a change in any component of aggregate demand. |
| marginal propensity to consume | The change in consumer spending divided by the change in disposable income; represents the fraction of additional income that consumers spend. |
| marginal propensity to save | The fraction of additional income that consumers save; equals one minus the marginal propensity to consume. |
| real GDP | The total monetary value of all final goods and services produced by an economy, adjusted for inflation to reflect actual changes in production. |
| spending | The total amount of money spent on goods and services in an economy, including consumption, investment, government purchases, and net exports. |
| tax multiplier | The ratio of the change in real output to an initial change in taxes, indicating how much aggregate demand changes from each dollar of tax change. |
| taxes | Government revenues that affect disposable income and the supply of loanable funds available for borrowing. |
| Term | Definition |
|---|---|
| aggregate output | The total quantity of goods and services produced in an economy, typically measured as real GDP. |
| employment | The state of having a paid job or being engaged in work for compensation. |
| inflation | A sustained increase in the general price level of goods and services in an economy over time. |
| inflation-unemployment trade-off | The short-run inverse relationship between inflation and unemployment, where lower unemployment is associated with higher inflation and vice versa. |
| inflationary expectations | The anticipated rate of inflation that consumers and businesses expect to occur in the future, influencing their economic decisions. |
| labor force | The total number of people in an economy who are either employed or actively seeking employment. |
| price level | The average of all prices of goods and services produced in an economy, typically measured by price indices like the CPI. |
| production costs | The expenses incurred by firms in producing goods and services, including wages, materials, and other inputs. |
| quantity of goods and services supplied | The total amount of output (real GDP) that producers are willing and able to supply at different price levels. |
| Short-Run Aggregate Supply curve | A graph showing the relationship between the price level and the quantity of goods and services supplied in an economy in the short run. |
| sticky prices | Prices that do not adjust quickly to changes in economic conditions, remaining fixed in the short run. |
| sticky wages | Wages that do not adjust quickly to changes in economic conditions, remaining fixed in the short run. |
| Term | Definition |
|---|---|
| employment | The state of having a paid job or being engaged in work for compensation. |
| fixed input prices | Input prices, such as wages, that cannot adjust immediately and remain constant in the short run. |
| flexible prices | Prices that can adjust freely in response to changes in supply and demand, characteristic of the long run. |
| flexible wages | Wages that can adjust freely in response to changes in labor market conditions, characteristic of the long run. |
| full employment | An economic condition where all available labor resources are being used efficiently and unemployment is at its natural rate. |
| inflation | A sustained increase in the general price level of goods and services in an economy over time. |
| long run | A time period in macroeconomics where all factors of production are variable and prices fully adjust to changes in supply and demand. |
| Long-Run Aggregate Supply curve | A vertical line on a graph representing the maximum sustainable output an economy can produce when all resources are fully employed and wages and prices have fully adjusted. |
| long-run trade-off | The absence of a permanent relationship between inflation and unemployment in the long run, as all prices and wages fully adjust. |
| maximum sustainable capacity | The total output an economic system will produce over a set period of time if all resources are fully employed. |
| Production Possibilities Curve | A graph showing the maximum combinations of two goods that can be produced with available resources and technology. |
| short run | A time period in macroeconomics where at least one factor of production is fixed and prices may not fully adjust to changes in demand. |
| Term | Definition |
|---|---|
| Aggregate Demand curve | A graph showing the relationship between the price level and the quantity of goods and services demanded in an economy at all price levels. |
| aggregate quantity of output demanded | The total amount of real output that all buyers in an economy are willing and able to purchase at different price levels. |
| aggregate quantity of output supplied | The total amount of real output that all producers in an economy are willing and able to supply at different price levels. |
| equilibrium output level | The level of real output at which the quantity demanded equals the quantity supplied in the economy. |
| equilibrium price level | The price level at which the quantity of real output demanded equals the quantity of real output supplied. |
| full employment | An economic condition where all available labor resources are being used efficiently and unemployment is at its natural rate. |
| inflationary output gap | A positive output gap occurring when actual real output exceeds the full-employment level of output, putting upward pressure on prices. |
| Long-Run Aggregate Supply curve | A vertical line on a graph representing the maximum sustainable output an economy can produce when all resources are fully employed and wages and prices have fully adjusted. |
| long-run equilibrium | The point where the short-run Phillips curve intersects the long-run Phillips curve, representing a stable economic state. |
| output gap | The difference between actual output and potential output in an economy. |
| Short-Run Aggregate Supply curve | A graph showing the relationship between the price level and the quantity of goods and services supplied in an economy in the short run. |
| short-run equilibrium | The point where aggregate demand and short-run aggregate supply intersect, determining the current price level and output in the Phillips curve model. |
| Term | Definition |
|---|---|
| aggregate demand shock | A sudden, unexpected change in the total demand for goods and services in an economy, causing shifts in the AD curve. |
| aggregate output | The total quantity of goods and services produced in an economy, typically measured as real GDP. |
| aggregate supply shock | An unexpected event that causes a sudden shift in the aggregate supply curve, affecting the economy's ability to produce goods and services. |
| cost-push inflation | Inflation caused by a decrease in aggregate supply due to rising production costs, pushing prices upward. |
| demand-pull inflation | Inflation caused by an increase in aggregate demand that pulls prices upward when the economy is near full capacity. |
| employment | The state of having a paid job or being engaged in work for compensation. |
| negative shock | An unexpected event that decreases aggregate demand or aggregate supply, leading to decreases in output and employment. |
| positive shock | An unexpected event that increases aggregate demand or aggregate supply, leading to increases in output and employment. |
| price level | The average of all prices of goods and services produced in an economy, typically measured by price indices like the CPI. |
| short run | A time period in macroeconomics where at least one factor of production is fixed and prices may not fully adjust to changes in demand. |
| Term | Definition |
|---|---|
| aggregate demand | The total quantity of goods and services demanded across an entire economy at different price levels. |
| aggregate output | The total quantity of goods and services produced in an economy, typically measured as real GDP. |
| aggregate supply shock | An unexpected event that causes a sudden shift in the aggregate supply curve, affecting the economy's ability to produce goods and services. |
| economic growth | An increase in the production of goods and services in an economy over time, measured by the growth rate of real GDP per capita. |
| employment | The state of having a paid job or being engaged in work for compensation. |
| flexible wages and prices | The ability of wages and prices to adjust upward or downward in response to changes in supply and demand. |
| full employment | An economic condition where all available labor resources are being used efficiently and unemployment is at its natural rate. |
| long run | A time period in macroeconomics where all factors of production are variable and prices fully adjust to changes in supply and demand. |
| Long-Run Aggregate Supply curve | A vertical line on a graph representing the maximum sustainable output an economy can produce when all resources are fully employed and wages and prices have fully adjusted. |
| natural rate of unemployment | The unemployment rate that exists when the economy produces full-employment real output, equal to the sum of frictional and structural unemployment. |
| price level | The average of all prices of goods and services produced in an economy, typically measured by price indices like the CPI. |
| short-run aggregate supply | The total quantity of goods and services that firms are willing to produce at different price levels in the short run, when some prices are sticky. |
| Term | Definition |
|---|---|
| AD-AS model | An economic model that shows the relationship between aggregate demand and aggregate supply to illustrate macroeconomic equilibrium and the effects of policy changes. |
| aggregate demand | The total quantity of goods and services demanded across an entire economy at different price levels. |
| contractionary fiscal policy | Government spending decreases or tax increases designed to decrease aggregate demand and reduce inflation. |
| discretionary fiscal policy | Government spending and taxation decisions made by policymakers to influence economic activity, as opposed to automatic stabilizers. |
| expansionary fiscal policy | Government spending increases or tax decreases designed to increase aggregate demand and stimulate economic growth. |
| fiscal policy | Government spending and taxation decisions that influence aggregate demand, real output, price level, and exchange rates. |
| full employment | An economic condition where all available labor resources are being used efficiently and unemployment is at its natural rate. |
| government spending | Government expenditures that can affect the demand for loanable funds and interest rates. |
| government spending multiplier | The ratio of the change in real output to an initial change in government spending, indicating how much aggregate demand increases from each dollar of government spending. |
| inflationary output gap | A positive output gap occurring when actual real output exceeds the full-employment level of output, putting upward pressure on prices. |
| lags | Delays between the time a policy action is taken and when its effects are fully realized in the economy. |
| macroeconomic goals | Broad economic objectives that governments aim to achieve, such as full employment, price stability, and economic growth. |
| price level | The average of all prices of goods and services produced in an economy, typically measured by price indices like the CPI. |
| real output | The total production of goods and services in an economy adjusted for inflation, measured in constant dollars. |
| short-run effects | The immediate economic impacts of a policy action on output, employment, and prices in the near term. |
| tax multiplier | The ratio of the change in real output to an initial change in taxes, indicating how much aggregate demand changes from each dollar of tax change. |
| taxes | Government revenues that affect disposable income and the supply of loanable funds available for borrowing. |
| transfers | Government payments to individuals or groups that do not represent payment for current goods or services, such as social security or unemployment benefits. |
| Term | Definition |
|---|---|
| automatic stabilizers | Government policies and programs that automatically adjust to support the economy during recessions and prevent overheating during expansionary periods without requiring deliberate policy changes. |
| business cycle | Fluctuations in aggregate output and employment caused by changes in aggregate supply and/or aggregate demand. |
| consumption | Spending by households on goods and services, which is affected by changes in tax revenues and disposable income. |
| expansionary periods | Periods of economic growth when GDP is rising and the economy is expanding. |
| Gross Domestic Product | The total monetary value of all final goods and services produced within a country during a specific period. |
| overheating | A condition where the economy grows too rapidly, leading to inflation and unsustainable economic expansion. |
| recession | A period of economic contraction characterized by declining GDP and reduced economic activity. |
| tax revenues | Income collected by the government through taxation. |
| transfer payments | Government payments to individuals or groups that are not in exchange for goods or services, such as social security or welfare benefits. |