Chapter 17: Short-Run to the Long-Run

Flashcards covering key macroeconomic concepts from Chapter 17 on the transition from short-run to long-run in economics.

Short-run

A period when wages and prices are sticky, impacting GDP determined by current demand.

Long-run

A period when prices are flexible, affecting GDP determined by the supply of labor, capital, and technological progress.

Crowding Out

A situation where increased government spending leads to a decrease in private investment.

Wage-Price Spiral

A cycle where rising wages increase prices, which then lead to further wage demands.

Neutrality of Money

In the long-run, changes in the money supply do not affect real interest rates or output.

Quantity Theory of Money

The theory that connects money supply and inflation, represented by the equation MV=PY.

Liquidity Trap

A situation where nominal interest rates are so low that they cannot fall further, hindering monetary policy.

Say's Law

The principle that supply creates its own demand.

Adjustment Process

The mechanism through which the economy moves back to full employment after deviations.

Expansionary Fiscal Policy

Government spending aimed at increasing aggregate demand and stimulating the economy.