demand, supply
The aggregate BLANK-aggregate BLANK model (AD-AS model) is a flexible-price model that enables analysis of simultaneous changes of real GDP and the price level.
aggregate demand
The BLANK BLANK curve shows the level of real output that the economy demands at each price level.
downsloping
The aggregate demand curve is BLANKING because of the real-balances effect, the interest-rate effect, and the foreign purchases effect. The real-balances effect indicates that inflation reduces the real value or purchasing power of fixed-value financial a
consumers, government, multiplier
The determinants of aggregate demand consist of spending by domestic BLANKS, by businesses, by BLANK, and by foreign buyers. The extent of the shift is determined by the size of the initial change in spending and the strength of the economy's BLANK.
aggregate supply, flexibility
The BLANK BLANK curve shows the levels of real output that businesses will produce at various possible price levels. The slope of the aggregate supply curve depends upon the BLANKITY of input and output prices. Since these vary over time, aggregate supply
immediate-short-run, short-run, long-run
The BLANK-BLANK-BLANK aggregate supply curve assumes that both input prices and output prices are fixed. With output prices fixed, the aggregate supply curve is a horizontal line at the current price level. The BLANK-BLANK aggregate supply curve assumes n
simultaneous
Because the short-run aggregate supply curve is the only version of aggregate supply that can handle BLANK changes in the price level and real output, it serves well as the core aggregate supply curve for analyzing the business cycle and economic policy.
input prices, productivity, legal-institutional
The determinants of aggregate supply are BLANK BLANKS, BLANK, and the BLANK-BLANK environment. A change in any one of these factors will change per-unit production costs at each level of output and therefore will shift the aggregate supply curve.
equilibrium
The intersection of the aggregate demand and aggregate supply curves determines an economy's BLANK price level and real GDP. At the intersection, the quantity of real GDP demanded equals the quantity of real GDP supplied.
inflation, multiplier effect
Increases in aggregate demand to the right of the full-employment output cause BLANK and positive GDP gaps (actual GDP exceeds potential GDP). An upsloping aggregate supply curve weakens the BLANK BLANK of an increase in aggregate demand because a portion
recession, cyclical, inflexible
Shifts of the aggregate demand curve to the left of the full-employment output cause BLANK, negative GDP gaps, and BLANK unemployment. The price level may not fall during recessions because of downwardly BLANKABLE prices and wages. This results from fear
cost-push
Leftward shifts of the aggregate supply curve reflect increases in per-unit production costs and cause BLANK-BLANK inflation, with accompanying negative GDP gaps.
aggregate supply
Rightward shifts of the BLANK BLANK curve, caused by large improvements in productivity, help explain the simultaneous achievement of full employment, economic growth, and price stability that occurred in the United States between 1996 and 2000. The reces
AD-AS model
The macroeconomic model that uses aggregate demand and aggregate supply to determine and explain the price level and the real domestic output.
aggregate demand
A schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels.
real-balances effect
The tendency for increases in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level.
interest-rate effect
The tendency for increases in the price level to increase the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases).
foreign purchases effect
The inverse relationship between the net exports of an economy and its price level relative to foreign price levels.
determinants of aggregate demand
Factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve.
aggregate supply
A schedule or curve showing the total quantity of goods and services supplied (produced) at different price levels.
immediate-short-run
An aggregate supply curve for which real output, but not the price level, changes when the aggregate demand curves shifts; a horizontal aggregate supply curve that implies an inflexible price level.
short-run
An aggregate supply curve relevant to a time period in which input prices (particularly nominal wages) do not change in response to changes in the price level.
long-run
The aggregate supply curve associated with a time period in which input prices (especially nominal wages) are fully responsive to changes in the price level.
determinants of aggregate supply
Factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve.
productivity
A measure of average output or real output per unit of input. For example, the productivity of labor is determined by dividing real output by hours of work.
equilibrium price level
The price level at which the aggregate demand curve intersects the aggregate supply curve.
equilibrium real output
The gross domestic product at which the total quantity of final goods and services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced (the real domestic output); the real domestic output at which the agg
menu costs
The reluctance of firms to cut prices during recessions (that they think will be short-lived) because of the costs of altering and communicating their price reductions; named after the cost associated with printing new menus at restaurants.
efficiency wages
A wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover.