Macroeconomic Principles

These flashcards cover key vocabulary and concepts from macroeconomic principles focusing on aggregate demand, aggregate supply, and monetary policies.

AD curve

Aggregate Demand curve, shows the relationship between the price level and quantity of goods and services demanded.

Wealth effect

The phenomenon where an increase in the price level reduces household real purchasing power, leading to lower consumption.

Expansionary fiscal policy

Government policy that increases spending or decreases taxes to stimulate the economy, shifting AD right.

Contractionary monetary policy

Policy that raises interest rates to curb inflation, shifting AD left.

Negative demand shock

An event that decreases aggregate demand, potentially leading to a recession.

Sticky wages

Wages that are slow to adjust in the short run, preventing quick equilibrium adjustments.

Short-run aggregate supply (SRAS) curve

The curve that shows the relationship between total production and price level in the short run.

Stagflation

An economic condition characterized by slow growth and high inflation simultaneously.

Recessionary gap

A situation where actual GDP is below potential output, indicating underperformance in the economy.

Liquidity

The ease with which an asset can be converted into cash without losing value.

Interest on Reserve Balances (IORB)

The interest paid by the Fed to banks on their reserves, influencing their willingness to lend.

Federal Open Market Committee (FOMC)

The branch of the Federal Reserve that determines the direction of monetary policy.

Desired output

The level of output that an economy aims to achieve given its resources and technology.

Demand shock vs. Supply shock

Demand shocks increase/decrease aggregate demand, whereas supply shocks impact aggregate supply.

Graph feedback

The interaction between price levels and GDP changes depicted in graphical models of AD-AS.

Crowding out mechanism

A situation where increased government spending leads to reduced private sector spending.