Chapter 9.

Simple Spending Multiplier

The ration of a change in real GDP demanded to the initial change in spending that brought it about; the numerical value of the simple multiplier 1/(1-MPC) called "simple" because only consumption varies with income.

Aggregate Supply

the relationship between the economy's price level and the amount of output firms are willing and able to supply

Labor is most important resource, 7% production costs

Nominal wages

the wage measured in dollars of the year in question; the dollar amount on a paycheck

real wage

the wage measured in dollars of constant purchasing power; the wage measured in terms of the quantity of goods and services it will buy

potential output

The economy's maximum sustainable output, given the supply of resources, technology, and know how and rules of the game; the output level when there are no surprises about the price level.

The natural rate of​ unemployment:

Unemployment rate when the economy produces its potential output

short run

In macroeconomics, a period during which some resource prices, especially those of labor, are fixed by explicit or implicit agreements

short-run aggregate supply (SARS) curve

Curve that shows a direct relationship between actual price level and real GDP supplied in the short run including the expected price level

short run equilibrium

the price level and real GDP that occur when the aggregate demand curve intersects the short-run aggregate supply curve

Expansionary Gap

the amount by which output in the short run exceeds the economy's potential output

Long run

In macroeconomics, a period during which wage contracts and resource price agreements can be renegotiated; there are no surprises about the economy's actual price level

long run equalibrium

Price level & real GDP that occur when... 1. The actual price level equals expected price level, 2. Real GDP supplied equals potential output 3. Real GDP supplies equals real GDP demanded

Recessionary (Contractionary) Gap

the amount by which actual output in the short run falls short of the economy's potential output

Long Run Aggregate Supply (LRAS) curve

a vertical line at the economy's potential output; aggregate supply when there are no surprises about the price level and all resource contracts can be renegotiated

Supply shocks

unexpected events that affect aggregate supply, sometimes only temporarily

Adverse Supply Shocks

unexpected events that reduce aggregate supply, sometimes only temporarily

Hysteresis

the theory that the natural rate of unemployment depends in part on the recent history of unemployment, a long period of high unemployment can increase natural rate of unemployment

Beneficial Supply Shocks.

unexpected events that increase aggregate supply, sometimes only temporarily