Chapter 15 - Modern Macroeconomics: From the Short Run to the Long Run

Political business cycle

________: The effect on the economy of using monetary or fiscal policy to stimulate the economy before an election to improve reelection prospects.

Short run

________ in macroeconomics: The period of time in which prices do not change or do not change very much.

full employment

When the economy is producing below ________ or potential output, the process works in reverse.

Keynes

________ argued that there could be situations in which total demand fell short of total production in the economy for extended periods of time.

Long run

________ aggregate supply curve: A vertical aggregate supply curve that reflects the idea that in the ________, output is determined solely by the factors of production and technology.

Tax cuts

________ initially will increase consumer spending and lead to a higher level of GDP.

Liquidity trap

________: A situation in which nominal interest rates are so low, they can no longer fall; also known as the zero lower bound.

GDP

Wages and prices will all tend to increase together during booms when ________ exceeds its full- employment level or potential output.

Lower interest rates

________ stimulate investment spending and push the economy back toward full employment.

Classical economics

________ is often associated with Says law, the doctrine that "supply creates its own demand ..

Long run

________ in macroeconomics: The period of time in which prices have fully adjusted to any economic changes.

GDP

Wages and prices will fall together during periods of recessions when ________ falls below full employment or potential output.

full employment

Prices are lower and output returns to ________.

full employment

If output exceeds ________, prices will rise and output will fall back to ________.

Aggregate Demand Curve

_____________________: A curve shows the relationship between the level of prices and the quantity of real GDP demanded.

Short-run aggregate supply curve

__________________________: A relatively flat aggregate supply curve that represents the idea that prices do not change very much in the short run and that firms adjust production to meet demand.

Wage-price spiral

____________: The process by which changes in wages and prices cause further changes in wages and prices.

Long run in macroeconomics

__________________: The period of time in which prices have fully adjusted to any economic changes.