When the economy is producing below ________ or potential output, the process works in reverse.
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international trade effect
The ________: In an open economy, a lower price level will mean that domestic goods become cheaper relative to foreign goods, so the demand for domestic goods will increase.
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real value of money
The wealth effect:** the increase in spending that occurs because the ________ increases when the price level falls.
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Adjustments
________ in wages and prices take the economy from short- run equilibrium to long- run equilibrium.
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part of consumption
The by represents the ________ that is dependent on income.
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Stagflation
________:** A decrease in real output with increasing prices.
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price system
Normally, the ________ efficiently coordinates what goes on in an economy.
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Input prices
________ (wages and materials): Increase in ________ will increase firms costs.
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marginal propensity
The** ________ to save (MPS)** is defined as the ratio of additional savings to additional income.
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physical capital
In the long run, the output is determined solely by the supply of human and ________ and the supply of labor, not the price level.
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external events
Supply shocks** are ________ that shift the aggregate supply curve.
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aggregate demand curve
Changes in taxes: A decrease in taxes will increase aggregate demand and shift the ________ to the right.
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MPC
The ________ tells us how consumer spending will increase for every dollar that income increases.
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price level
As the ________ or average level of prices in the economy changes, so does the purchasing power of your money.
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aggregate demand
Changes in government spending: At any given price level, an increase in government spending will increase ________ and shift the aggregate demand curve to the right.
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total shift
The ratio of the ________ in aggregate demand to the initial shift in aggregate demand is known as the** multiplier**
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desires of consumers
On a day- to- day basis, the price system works silently in the background, matching the ________ with the output from producers.
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Ca
________ is a constant and is independent of income which is called** autonomous consumption spending.
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fast real GDP
Too slow "or "too ________ growth are examples of Economic fluctuations- movements of GDP away from potential output.
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price system
The ________ provides signals to firms as to who buys what, how much to produce, what resources to use, and from whom to buy.
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aggregate demand
Changes in the supply of money: An increase in supply of money in the economy will increase ________ and shift the aggregate demand curve to the right.
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Flashcard (94)