AP Economics Chapter 29 Vocabulary

AP Economics Chapter 29 Vocabularyaggregate demand-aggregate supply model: The macroeconomic model that uses aggregate demand and aggregate supply to determine and explain the price level and the real domestic output.

aggregate demand: A schedule or curve that shows the total quantity of goods and services demanded at different price levels.real-balance effect: The tendency for increases in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level.

interest rate effect: The tendency for increases in the price level to increase the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases).

foreign purchase effect: The inverse relationship between the net exports of an economy and its price level relative to foreign price levels.

determinants of aggregate demand: Factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve.

aggregate supply: A schedule or curve showing the total quantity of goods and services supplied (produced) at different price levels.

immediate short-run aggregate supply curve: An aggregate supply curve for which real output, but not the price level, changes when the aggregate demand curves shifts; a horizontal aggregate supply curve that implies an inflexible price level.short run aggregate supply curve: An aggregate supply curve relevant to a time period in which input prices (particularly nominal wages) do not change in response to changes in the price level.long run aggregate supply curve: The aggregate supply curve associated with a time period in which input prices (especially nominal wages) are fully responsive to changes in the price level.

determinants of aggregate supply: Factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve.

productivity: A measure of average output or real output per unit of input. For example, the productivity of labor is determined by dividing real output by hours of work.

equilibrium price level: The price level at which the aggregate demand curve intersects the aggregate supply curve.

equilibrium real output: The gross domestic product at which the total quantity of final goods and services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced; the real domestic output at which the aggregate demand curve intersects the aggregate supply curve.

menu costs: The reluctance of firms to cut prices during recessions because of the costs of altering and communicating their price reductions; named after the cost associated with printing new menus at restaurants.

efficiency wage: A wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover.