Aggregation
Combining smaller individual markets into one overall market
Gross Domestic Product (GDP)
The sum of the money values of all final goods and services produced in the domestic economy and sold on organized during a specified period of time usually one year.
Final goods and services = those purchased by their ultimate user so intermediate goods
Nominal GDP
GDP calculated by valuing all outputs at current prices or in current dollars. This is a poorer measure of output because NGDP rises when prices go up even though production has not changed.
Real GDP
GDP calculated by valuing outputs of different years at common prices or in constant dollars. Changes in real GDP indicate changes in production.
Deflation
A sustained decrease in the general price level
Inflation
A sustained increase in the general price level
Stabilization Policy
Programs designed to prevent or shorten recessions and counteract inflation aka to stabilize prices (usually a combination of monetary and fiscal policy)
Governments combat unemployment / recessions / deflation by increasing AD which also raises prices.
G
Monetary Policy
policy that involves changing the rate of growth of the money supply in circulation in order to affect the cost and availability of credit. Includes the management of interest rates
Fiscal Policy
A government's plan for spending and taxation. Can be used to steer aggregate demand in the desired direction.
Stagflation
Inflation that occurs while the economy is growing slowly or in a recession. Inflation accompanied by unemployment.
Aggregate Demand Curve
Shows the quantity of domestic product that is demanded at each possible price level
Aggregate Supply Curve
Shows the quantity of domestic produce that is supplied at each possible price level
Recession
Period of time during which the total output of the economy declines. Characterized by rising unemployment and lower output as well as by falling or slow aggregate demand
Economic Growth
Both AD and AS curves shift outward
Significant Historic Periods of Inflation / Deflation
Bursts of Inflation followed both World Wars
Dramatic Deflation in the 1870's, 1880's, 1921-2 and 1929-33
1960's = period of unprecedented non-inflationary economic growth
Stagflation during the 1970's due to wartime spending, bad food harvests, OPEC oil
The Great Depression
- 1929-33
- Most severe decline in economic activity in the history of the united states
- unemployment rose from 3% - 25%
- Had global ramifications and led to the Keynesian revolution
Reaganomics
- Tax cuts to boost growth and reduce inflation
- Tickle down theory
Clintonomics
- Deficit reduction through tax increases and spending cuts
- "New Economy" (the product of globalization, computerization etc)