Business Fluctuations: Aggregate Demand and Supply

These flashcards cover key vocabulary terms and concepts related to business fluctuations, aggregate demand and supply, and economic shocks.

Business fluctuations

Fluctuations in the growth rate of real GDP around its trend growth rate.

Recession

A significant, widespread decline in real income and employment.

Aggregate demand curve

Shows all the combinations of inflation and real growth that are consistent with a specified rate of spending growth.

Long-run aggregate supply curve (LRAS)

A vertical line at the Solow growth rate, independent of the inflation rate.

Solow growth rate

An economy's potential growth rate; the rate of economic growth that would occur given flexible prices and the existing real factors of production.

Short-run aggregate supply (SRAS) curve

Shows the positive relationship between the inflation rate and real growth during the period when prices and wages are sticky.

Aggregate demand shock

A rapid and unexpected shift in the AD curve (spending).

Menu costs

The costs of changing prices.

Nominal wage confusion

Occurs when workers respond to their nominal wage instead of to their real wage.

Real shocks

Rapid changes in economic conditions that increase or diminish the productivity of capital and labor.