Chapter 19-20 Macro - Theory of the Open Economy, Aggregate Demand and Aggregate Supply

Trade policy

a government policy that directly influences the quantity of goods and services that a country imports or exports

Capital Flight

a large and sudden reduction in the demand for assets located in a country

recession

a period of declining real incomes and rising unemployment

depression

a severe recession

model of aggregate demand and aggregate supply

the model that most economists use to explain short run fluctuations in economic activity around its long run trend

aggregate demand curve

a curve that shows the quantity of goods and services that households, firms, and the government, and customers abroad want to buy at each price level

aggregate supply curve

a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level

natural level of output

the production of goods and services that an economy achieves in the long run when unemployment is at its normal rate

stagflation

a period of falling output and rising prices