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akoskey
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aggregate demand and aggregate supply model
a model that explains short-run fluctuations in real GDP and the price level
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aggregate demand curve
a curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the gvmt
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short-run aggregate supply curve
a curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms
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monetary policy
the actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives
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fiscal policy
changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives
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long-run aggregate supply curve
a curve that shows the relationship between the price level and the quantity of real GDP supplied
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supply shock
an unexpected event that causes the short-run aggregate supply curve to shift
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stagflation
a combination of inflation and recession, usually resulting from a supply shock
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aggregate demand
- international trade effect
- wealth effect (real balance)
- interest rate effect
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aggregate supply
upward slope of sras are 'sticky' costs and prices
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causes of shifts in aggregate demand
- changes in expectations
- government policies
- changes in foreign variables
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changes in expectations
- ex. great depression
- decrease in output=recession
- decrease in prices=deflation
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government policies
- fiscal (spending and taxing)
- monetary (money supply and interest rates)
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change in foreign variables
- change in currency exchange rate
- change in growth of foreign GDP v. US GDP
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causes of shifts in SRAS
- changes in ability to produce
- sudden change in availability of key resource (supply shock)
- changes in expectation about future prices
- correction of past errors in estimating prices
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keynes
the general theory of employment, interest, and money (1936)
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GDP gap
- full employment GDP - actual GDP
- loss; not producing at full potential
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