economics 24

a model that explains short-run fluctuations in real GDP and the price level

a curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the gvmt

a curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms

the actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives

changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives

a curve that shows the relationship between the price level and the quantity of real GDP supplied

an unexpected event that causes the short-run aggregate supply curve to shift

a combination of inflation and recession, usually resulting from a supply shock

• international trade effect
• wealth effect (real balance)
• interest rate effect

upward slope of sras are 'sticky' costs and prices

• changes in expectations
• government policies
• changes in foreign variables

• ex. great depression
• decrease in output=recession
• decrease in prices=deflation

• fiscal (spending and taxing)
• monetary (money supply and interest rates)

• change in currency exchange rate
• change in growth of foreign GDP v. US GDP

• changes in ability to produce
• sudden change in availability of key resource (supply shock)
• changes in expectation about future prices
• correction of past errors in estimating prices

the general theory of employment, interest, and money (1936)

• full employment GDP - actual GDP
• loss; not producing at full potential