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Cards In This Set
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When economists talk about 'holding everything else constant,' what do they mean?
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Willingness to spend (by households, firms, and the gov) is held constant.
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How does the dynamic model of AD/AS explain inflation?
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Inflation occurs when spending increases faster than production.
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Two goals of an AE model?
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1. Define macroeconomic equillibrium
2. show short-run fluctuations in the GDP |
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What 4 things could change consumption that would change AE?
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Disposable income, household wealth, expected future income, and price level
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What 3 things could change planned investment that would change AE?
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Current profits, interest rate, and changes in taxes
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What 3 things could make the SRAS shift?
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A shift in the LRAS, inflation expectations, and a supply shock
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What's the wealth effect?
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When the price level falls, the real value of household wealth rises, and so will consumption
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What's a cause of stagflation?
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An adverse supply shock
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When national income increases, there must be some combination of an increase in household:
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Consumption, saving, and taxes
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Fluctuations in total spending in the economy may affect:
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Short-run employment and production
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What's the impact of an increase in stock prices?
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An increase in the consumption component of aggregate expenditure
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What's an economic growth model?
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A model that explains changes in real GDP per person in the LONG RUN.
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