Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.
Short-run equilibrium aggregate output Aggregate demand curve Long-run macroeconomic equilibrium Interest rate effect of a change in the aggregate price level Short-run macroeconomic equilibrium Stagflation Wealth effect of a change in the aggregate price level Supply shock Aggregate supply curve Short-run equilibrium aggregate price level Short-run aggregate supply curve Demand shock AD-AS model Inflationary gap Long-run aggregate supply curve Potential output Recessionary gap Self-correcting Output gap Sticky wages Nominal wage Stabilization policy | shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible. is the dollar amount of the wage paid. shows the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy. a state that exists when aggregate output is above potential output. is the difference between real GDP and potential GDP, often given as a percentage of potential GDP. are nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labour shortages. when the quantity of aggregate output supplied in the short run is equal to the quantity demanded. when the point of short-run macroeconomic equilibrium is on the long-run aggregate supply curve. the basic model used to understand fluctuations in aggregate output and the aggregate price level. It uses the aggregate supply curve and the aggregate demand curve together to analyze the behaviour of the economy in response to shocks or government policy. when aggregate output is below potential output. an event that shifts the short-run aggregate supply curve. A negative supply shock raises production costs and reduces the quantity supplied at any aggregate price level, shifting the curve leftward. A positive supply shock decreases production costs and increases the quantity supplied at any aggregate price level, shifting the curve rightward. when shocks to aggregate demand affect aggregate output in the short run, but not the long run. a graphical representation that shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, firms, the government, and the rest of the world. The aggregate demand curve has a negative slope due to the wealth effect of a change in the aggregate price level and the interest rate effect of a change in the aggregate price level. is the use of government policy to reduce the severity and duration of recessions and rein in excessively strong expansions. is the combination of rising prices (higher inflation) and falling aggregate output. is the level of real GDP the economy would produce if all prices, including nominal wages, were perfectly, or fully, flexible. is the quantity of aggregate output produced in the short-run macroeconomic equilibrium. shows the relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed. is the effect on consumer spending and investment spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers’ and firms’ money holdings. is the aggregate price level in the short run macroeconomic equilibrium. is the effect on consumer spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers’ assets. an event that shifts the aggregate demand curve. A positive demand shock is associated with higher demand for aggregate output at any price level and shifts the curve to the right. A negative demand shock is associated with lower demand for aggregate output at any price level and shifts the curve to the left. |