Chapter 15: Modern Macroeconomics: From the Short Run to the Long Run
short run in macroeconomics
the period of time in which prices do not change or do not change very much
long run in macroeconomics
the period of time in which prices have fully adjusted to any economics changes
wage-price spiral
the process by which changes in wages and prices cause further changes in wages and prices
aggregate demand curve
a curve that shows the relationship between the level of prices and the quantity of real GDP demanded
short-run aggregate supply curve
a relatively flat aggregate supply curve that represents the idea that prices do not change very much in the short run and that firms adjust production to meet demand
long-run aggregate supply curve
a vertical aggregate supply curve that reflects the idea that in the long run, output is determined solely by the factors of production and technology
liquidity trap
a situation in which nominal interest rates are so low, they can no longer fall; also known as the zero lower bound
political business cycle
the effects on the economy of using monetary or fiscal policy to stimulate the economy before an election to improve reelection prospects
long-run neutrality of money
a change in the supply of money has no effect on real interest rates, investment, or output in the long run