Macroeconomics Final exam app state 2016

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a period of falling incomes and rising unemployment
A severe recession
Aggregate- demand curve
a curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level

a decrease in aggregate demand shifts the curve to the left
an increase shifts it to the right

the fed can effect agg demand by increasing government spending therefor increasing the money supply giveing people more money, increasing peoples willingness to spend their money thus increasing the demand people have for products shifting the ADC to the right

Aggregate- supply curve
A curve that shows the quantity of goods and services that firms choose to produce and sell at each price level

increased production costs cause the Agg supply curve to shift to the left

Natural level of output
how many goods an economy can produce when unemployment is at its normal rate
a period of falling output and rising prices
. Most economists believe that classical macroeconomic theory is a good description of the economy
in the long run, but not in the short run
The wealth effect
a lower price level increases real wealth, which stimulates spending on consumption
the interest rate effect
a lower price level reduces the interest rate, which stimulates spending on investment
most important reason
The exchange rate effect
a lower price level causes the real exchange rate to depreciate which stimulates spending on net exports
changes in labor
more workers = more goods being made
unemployment moves it to the left
immigration into the country moves it to the right
aka long run aggregate supply would shift to the right
changes in captial
if the government has more money then the supply is higher shifting the LRAS to the right
aka more gov money =more output
Changes in natural resources
a storm makes farming more difficult decreasing the level of output and shifting the LRAS to the left
changes in technological knowledge
tech improvements increase productivity
aka shifting LRAS to the right
think about how all these factors effect productivity
the sticky wage theory
an unexpectedly low price level raises the real wage which causes firms to hire fewer workers and produce a smaller quantity of goods and services

aka if your labor is cheap and your products sell for alot of money then you increase your amount of labor so that you increase your quantity of output and make more $$$
vise versa
if your labor is expensive but your products are cheap then your losing money so you lower your quantity of output by reducing your amount of labor so you dont lose as much money

the sticky price theory
an unexpectedly low price level leaves some firms with higher than desired prices which depresses their sales and leads them to cut back production

aka if a firm sells a product at a certain amount that they later find out to be too high they will lower their quantity of output instead of immediately lowering prices because they would incur high menu costs.
aka wages get stuck and it takes time for company’s to change them

the misperceptions theory
an unexpectedly low price level leads some suppliers to think their relative prices have fallen, which induces a fall in production

aka its a mistake in pricing the product causing them to cut back or increase labor before they know what actually will happen
aka prices get stuck and take time for company’s to change them

Categories: Macroeconomics