Chapter 35: Extending the Analysis of Aggregate Supply

Central banks

________ engineer ongoing increases in the money supply in order to cause slightly faster continuous rightward shifts of the aggregate demand curve.

Short run

Input prices are inflexible or totally fixed

Long run

Input prices are fully flexible

Phillips Curve

Suggests an inverse relationship between the rate of inflation and the rate of unemployment

Stagflation

High inflation and high employment rates

Aggregate supply shocks

Sudden, large increases in resource costs that jolt an economy’s short-run aggregate supply curve leftward

Disinflation

Reductions in the inflation rate from year to year

Supply side economics

Changes in aggregate supply are an active force in determining the levels of inflation, unemployment, and economic growth

significant trade

There is no ________- off between inflation and unemployment over long periods of time.

Laffer Curve

Depicts the relationship between tax rates and tax revenues

aggregate demand

Increase in ________ → Increased price level and expanded real output.

actual rate of inflation

When the ________ is higher than expected, profits temporarily rise and the unemployment rate temporarily falls.

High tax rates

________ impede productivity growth and hence slow the expansion of long- run aggregate supply.

demand pull inflation

In the short run, ________ drives up the price level and increases real output; in the long run, only the price level rises.

Short run

Input prices are inflexible or totally fixed

Long run

Input prices are fully flexible

Phillips Curve

Suggests an inverse relationship between the rate of inflation and the rate of unemployment

Stagflation

High inflation and high employment rates

Aggregate supply shocks

Sudden, large increases in resource costs that jolt an economys short-run aggregate supply curve leftward

Disinflation

Reductions in the inflation rate from year to year

Supply side economics

Changes in aggregate supply are an active force in determining the levels of inflation, unemployment, and economic growth

Laffer Curve

Depicts the relationship between tax rates and tax revenues