Chapter 24 - Aggregate demand, aggregate supply & business cycles

________ (AD) curve: curve that shows the amount of output consumers, firms, government, and customers abroad want to purchase at each inflation rate, holding all other factors constant.

________ (AS) curve: curve that shows the relationship between the amount of output firms want to produce and the inflation rate, holding all other factors constant.

________ equilibrium: situation in which the AD and AS curves intersect at potential output Y*

________ equilibrium: situation where the AD and AS curves intersect at a level of real GDP that is above or below potential.

________ are caused by shifts in aggregate demand and aggregate supply.

________ rises to eliminate an expansionary gap and falls to eliminate a recessionary gap.

________: changes in planned spending that are not caused by changes in output or the inflation rate.

________: sudden change in the normal behavior of inflation, unrelated to the nation's output gap.

________: rule that describes how a central bank, like the Fed, takes action in response to changes in the state of the economy.

Change in ________: shift of the AD curve.

situation in which the AD and AS curves intersect at potential output Y*

situation where the AD and AS curves intersect at a level of real GDP that is above or below potential

curve that shows the amount of output consumers, firms, government, and customers abroad want to purchase at each inflation rate, holding all other factors constant

rule that describes how a central bank, like the Fed, takes action in response to changes in the state of the economy

shift of the AD curve

changes in planned spending that are not caused by changes in output or the inflation rate

curve that shows the relationship between the amount of output firms want to produce and the inflation rate, holding all other factors constant

shift of the AS curve

sudden change in the normal behavior of inflation, unrelated to the nation's output gap

fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation

Situation in which the AD and AS curves intersect at potential output Y*

Situation where the AD and AS curves intersect at a level of real GDP that is above or below potential

Curve that shows the amount of output consumers, firms, government, and customers abroad want to purchase at each inflation rate, holding all other factors constant

Rule that describes how a central bank, like the Fed, takes action in response to changes in the state of the economy

Shift of the AD curve

Changes in planned spending that are not caused by in changes in output or the inflation rate

Curve that shows the relationship between the amount of output firms want to produce and the inflation rate, holding all other factors constant

Shift of the AS curve

Sudden change in the normal behavior of inflation, unrelated to the nation's output gap

Fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation