Chapter 12: National Income and Price Determination

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Aggregate demand

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16 Terms

1

Aggregate demand

total demand for goods and services

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2

Aggregate supply (AS)

curve shows total value of output produces are willing + able to supply at different price levels during a certain time

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3

Aggregate demand (AD)

total demand of goods/services

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4

Price level

average level for all prices

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5

Long-run aggregate supply curve (LAS)

stands at level of output that corresponds with full employment

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6

Cost-push (supply inflation)

when inflation is due to increase in resource costs (shifts AS curve to left)

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7

Stagflation

rising prices and falling output

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8

Demand pull inflation

result of AD curve shifting out to the right relative to AS curve

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9

Creeping inflation

inflation at a low rate that remains teady for a long period of time

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10

Galloping inflation

unsteady inflation that exceeds 10% per year and grows monthly

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11

Hyperinflation

rapid price incrase greater than 50% per year

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12

Inflationary gap

amount the equilibrium real GDP would need to increase to reach the LAS

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13

Spending multiplier

number the initial amount of new spending needs to be multiplied by to find total resulting increase in real GDP

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14

Marginal propensity to consume (MPC)

amount consumption increases for every dollar of real income

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15

Marginal propensity to save (MPS)

fraction of each dollar of income that is saved

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16

Fiscal policy

when government tries to counteract fluctuations in aggregate expenditure by changing purchases, transfer payment, taxes

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