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Glossary

  1. Aggregate Demand: The total demand for all goods and services in a country at varying price levels. Aggregate demand is expressed by the equation AD = C + I + G + Xn.
  2. Aggregate Supply: The total output of goods and services produced in a nation at varying price levels.
  3. Inflationary Gap: A condition that arises when a country's real GDP and the level of GDP with full employment causes an increase in consumption leading to higher prices.
  4. Recessionary Gap: When an economy is currently operating at a GDP level below its full employment GDP.
  5. Full employment: When the economy is operating at an neutral level of unemployment, which in the United States has been considered 4-5% unemployment.
  6. Long Run Equilibrium: The level at which an economy is considered to be at full employment of its available resources.
  7. Long Run Aggregate Supply: The potential output in an economy when all prices and wages are flexible
  8. Short Run: A period of time when price level can change but resource price and wages haven't had time to adjust.
  9. Long Run: A period of time in which all factors of production and costs are variable.
  10. Keynesian Economics: The economic theory created by John Maynard Keynes that focuses on government intervention in an economy.
  11. Classical Economics: The economic theory created by Adam Smith that states that an economy left alone will self-regulate and achieve equilibrium.
  12. Recognition Lag: The lag in time it takes governments and economists to recognize the change in a country's economic situation.
  13. Implementation Lag: The lag in time between when a change in economic situation has been realized and when a corrective action is put in place.
  14. Inflationary Gap: When an economy is currently operating at a GDP level beyond its full employment GDP.
  15. Recessionary Gap: When an economy is currently operating at a GDP level below its full employment GDP.
  16. Long Run Equilibrium: The level at which an economy is considered to be at full employment of its available resources.
  17. Contractionary Policy: An economic policy that attempts to slow down an economy.
  18. Expansionary Policy: An economic policy that attempts to encourage an economy to grow.
  19. Natural Rate of Unemployment: The lowest rate of unemployment that an economy can sustain without the danger of inflation, considered to be between 4-5% in the United States.
  20. Fiscal Policy: The federal government's spending and taxing policies that affect the economy.
  21. Monetary Policy: The Federal Reserve's actions that influence the money supply, the cost of money and credit.
  22. Sticky wages and prices: The economic idea that wages and prices don't fluctuate easily with changes in economic activity.
  23. Flexible wages and prices: The economic idea that wages and prices will fluctuate with changes in economic activity.
  24. Stagflation: An economic situation with high unemployment and high inflation; coined to describe economic conditions in the United States during the 1970s.