chapter 12 the keynesian perspective/chapter 13 the neoclassical perspective

contractionary fiscal policy - tax increases or cuts in government spending designed to decrease aggregate demand and reduce inflationary pressures

coordination argument - downward wage and price flexibility requires perfect information about the level of lower compensation acceptable to other laborers and market participants

disposable income - income after taxes

expansionary fiscal policy - tax cuts or increases in government spending designed to stimulate aggregate demand and move the economy out of recession

expenditure multiplier - Keynesian concept that asserts that a change in autonomous spending causes a more than proportionate change in real GDP

inflationary gap - equilibrium at a level of output above potential GDP

macroeconomic externality - occurs when what happens at the macro level is different from and inferior to what happens at the micro level; an example would be where upward sloping supply curves for firms become a flat aggregate supply curve, illustrating that the price level cannot fall to stimulate aggregate demand

menu costs - costs firms face in changing prices

Phillips curve - the tradeoff between unemployment and inflation

real GDP - the amount of goods and services actually sold in a nation

recessionary gap - equilibrium at a level of output below potential GDP

sticky wages and prices - a situation where wages and prices do not fall in response to a decrease in demand, or do not rise in response to an increase in demand