CH. 13 Neoclassical Perspective Flashcards

Flashcards covering key vocabulary and concepts from the Neoclassical Perspective in economics.

Neoclassical Perspective

The philosophy that, in the long run, the business cycle will fluctuate around the potential, or full-employment, level of output.

Potential GDP

The level of output that an economy can achieve when all resources (land, labor, capital, and entrepreneurial ability) are fully employed.

Physical capital per person

The amount and kind of machinery and equipment available to help a person produce a good or service.

Human capital

Increasing levels of knowledge, education, and skill sets per person through vocational or higher education.

Rational expectation

The theory that people form the most accurate possible expectations about the future that they can, using all information available to them.

Adaptive expectations

The theory that people look at past experience and gradually adapt their beliefs and behavior as circumstances change.

Expected inflation

A future rate of inflation that consumers and firms build into current decision making.