Chapter 7 - The Economy at Full Employment

Real business cycle theory

Real business cycle theory

________ emphasizes that shocks to technology can be a major cause of economic fluctuations.

Labor

________ consists of the efforts, both physical and mental, of all the workers in the economy used to produce goods and services.

full employment output

In an open economy, ________ is divided among four uses: consumption, investment, government purchases, and net exports (exports- imports): Y= C + I + G + NX.

international trade

An economy with ________ is called an open economy.

stock of capital

The ________ is all the machines, equipment, and buildings in the entire economy.

significant technological improvement

A(n) ________ will enable the economy to increase the level of both actual and potential output.

Full employment

________ means an economy has frictional and structural unemployment but no cyclical unemployment.

Principle of Opportunity Cost

________: The opportunity cost of something is what you sacrifice to get it.

positive technological shock

A(n) ________ would increase labor demand and result in both higher wages and higher employment.

level of employment

Together, the demand and supply curves determine the ________ in the economy and the level of real wages.

Capital

________ is one of the key factors of production.

total level of output

It explains how the ________ or GDP in the economy is generated from the factors of production.

full employment model

The ________ is used to analyze the long- term issues, such as the role taxes play in determining the level of GDP and how immigration affects wages and GDP.

real wage

The amount of labor firms in the economy will hire depends on the __________: the wage rate paid to employees adjusted for changes in the price level.

Marginal Principle

_______________: Increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

Output

__________ = consumption + investment + government purchases