Ch 16 - Macroeconomic Equilibrium

Excess demand

Excess demand

________ creates inflation (P1- P2), so wages increase to match this inflation.

Classical

________: supply- side policies are very important as they do not create actual and potential economic growth, but also decrease inflation.

Output

________ can increase along the short run AS curve by having workers work overtime (short- term solution)

Keynesian

________: during a recession, supply- side policies may increase productive potential however no actual growth occurs.

short run equilibrium

The economy is in ________ when aggregate demand equals aggregate supply.

Supply side policies

________: government attempts to increase productivity and efficiency in the economy.

Deflationary gap

________: where the economy would be in equilibrium at a level of output that is less than the full employment level of output.

Fall

________ in price level means that the prices of the factors of production have ________.

Equilibrium

________: the point which demand is equal to supply.

aggregate demand

When ________ is equal to aggregate supply, there us no upwards /downwards pressure on the price level.

In short run

equilibrium could operate in the short run equilibrium at below their potential output

In long run

the economy could return to its maximum potential output (equilibrium would be at AD + LRAS)

Classical

supply-side policies are very important as they do not create actual and potential economic growth, but also decrease inflation