Ch 16 - Macroeconomic Equilibrium 

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13 Terms

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Excess demand
________ creates inflation (P1- P2), so wages increase to match this inflation.
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Classical
________: supply- side policies are very important as they do not create actual and potential economic growth, but also decrease inflation.
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Output
________ can increase along the short run AS curve by having workers work overtime (short- term solution)
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Keynesian
________: during a recession, supply- side policies may increase productive potential however no actual growth occurs.
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short run equilibrium
The economy is in ________ when aggregate demand equals aggregate supply.
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Supply side policies
________: government attempts to increase productivity and efficiency in the economy.
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Deflationary gap
________: where the economy would be in equilibrium at a level of output that is less than the full employment level of output.
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Fall
________ in price level means that the prices of the factors of production have ________.
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Equilibrium
________: the point which demand is equal to supply.
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aggregate demand
When ________ is equal to aggregate supply, there us no upwards /downwards pressure on the price level.
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In short run
equilibrium could operate in the short run equilibrium at below their potential output
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In long run
the economy could return to its maximum potential output (equilibrium would be at AD + LRAS)
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Classical
supply-side policies are very important as they do not create actual and potential economic growth, but also decrease inflation