Sections
Key Terms
Key Terms
- contractionary fiscal policy
- tax increases or cuts in government spending designed to decrease aggregate demand and reduce inflationary pressures
- coordination argument
- downward wage and price flexibility requires perfect information about the level of lower compensation acceptable to other laborers and market participants
- disposable income
- income after taxes
- expansionary fiscal policy
- tax cuts or increases in government spending designed to stimulate aggregate demand and move the economy out of recession
- expenditure multiplier
- Keynesian concept that asserts that a change in autonomous spending causes a more than proportionate change in real GDP
- inflationary gap
- equilibrium at a level of output above potential GDP
- macroeconomic externality
- when what happens at the macro level is different from and inferior to what happens at the micro level; an example is when upward-sloping supply curves for firms become a flat aggregate supply curve, illustrating that the price level cannot fall to stimulate aggregate demand
- menu costs
- costs firms face in changing prices
- Phillips curve
- the tradeoff between unemployment and inflation
- real GDP
- the amount of goods and services actually being sold in a nation
- recessionary gap
- equilibrium at a level of output below potential GDP
- sticky wages and prices
- when wages and prices do not fall in response to a decrease in demand, or do not rise in response to an increase in demand