| interactive activity
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.
Aggregate demand curve Wealth effect of a change in the aggregate price level Interest rate effect of a change in the aggregate price level Aggregate supply curve Nominal wage Sticky wages Short- Long- Potential output AD–AS model Short- Short- Short- Demand shock Supply shock Stagflation Long- Recessionary gap Inflationary gap Output gap Self- Stabilization policy | a graphical representation that 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. The long- the quantity of aggregate output produced in short- a graphical representation that shows the relationship between the aggregate price level and the total quantity of aggregate output supplied in the economy. a graphical representation that shows the positive 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, particularly nominal wages, can be taken as fixed. The short- nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages. the combination of inflation and falling aggregate output. the dollar amount of any given wage paid. the point at which the quantity of aggregate output supplied is equal to the quantity demanded. the effect on consumer spending and investment spending caused by a change in the purchasing power of consumers’ money holdings when the aggregate price level changes. A rise (fall) in the aggregate price level decreases (increases) the purchasing power of consumers’ money holdings. In response, consumers try to increase (decrease) their money holdings, which drives up (down) interest rates, thereby decreasing (increasing) consumption and investment. the effect on consumer spending caused by the change in the purchasing power of consumers’ assets when the aggregate price level changes. A rise in the aggregate price level decreases the purchasing power of consumers’ assets, so consumers decrease their consumption; a fall in the aggregate price level increases the purchasing power of consumers’ assets, so consumers increase their consumption. 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. exists when aggregate output is above potential output. the use of government policy to reduce the severity of recessions and to rein in excessively strong expansions. There are two main tools of stabilization policy: monetary policy and fiscal policy. the point at which the short- the aggregate price level in short- the level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible. describes an economy in which shocks to aggregate demand affect aggregate output in the short run but not in the long run. the percentage difference between actual aggregate output and potential output. 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 behavior of the economy in response to shocks or government policy. an event that shifts the short- 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. exists when aggregate output is below potential output. |