| Term | Definition |
| natural real GDP | the real GDP that is produced at the natural unemployment rate; the real GDP that is produced when the economy is in long-run equilibrium; Qn |
| appreciation | an increase in the value of one currency relative to other currencies; PP$ up ->US Ex up US Im down -> Nx up -> AD up |
| AD curve equation | AD = C+I+G+Nx; left side of = sign, house to house movement, right side of = sign, street to street movement; direct relationship, one side of = sign goes up, so does the other & vice versa |
| aggregate demand (AD) curve | downward slope b/c 1. real balance effect (wealth), 2. interest rate effect, 3. int'l (foreign) trade effect; inverse relationship between the Price level & the qty demanded of Real GDP |
| wealth | the value of all assets owned, both monetary & nonmonetary |
| SRAS shifters (street to street) | wage rates (inverse), prices of nonlabor inputs (inverse), productivity (direct), supply shocks (beneficial SRAS up, adverse SRAS down) |
| LRAS Curve movements | economy is too hot = left of SR equilibrium, Inflationary Gap = too much spending; economy is too cold = right of SR equilibrium, Recessionary/Contractionary Gap; economy is just right at LR equilibrium when at SR equilibrium |
| Short-Run Aggregate Supply (SRAS) Curve | a curve that shows the qty supplied of all goods & services (Real GDP) at different price levels, ceteris paribus; represents producers, upward sloping b/c sticky wages & worker misperceptions (house to house) |
| monetary wealth | the value of a person's monetary assets only |
| interest rate effect | the changes in household & business spending that is sensitive to changes in the interest rate; inverse relationship, house to house movement |
| velocity | the average # of times a dollar is spent to buy final goods & services in a yr |
| aggregate supply | the qty supplied of all goods & services (Real GDP) at different price levels, ceteris paribus |
| real balance effect | the change in the purchasing power of dollar-denominated assets that results fr a change in the price level; basically when your money means more, you buy more; house to house movement |
| difference between SR & LR | SR = adj/changes cannot be made, LR they can |
| long-run aggregate supply (LRAS) curve | a vert line at the level of natural real GDP; represents the output the economy produces when wages & prices have adjusted to their equilibrium levels when wkrs do not have any relevant misperceptions; the economy's potential |
| long-run equilibrium | the condition that exists in the economy when wages & prices have adjusted to their (final) equilibrium level when wkrs don't have any relevant misperceptions; graphically LR equilibrium occurs at the intersection of the AD & LRAS curves |
| aggregate demand (AD) | the qty of all goods & services (Real GDP) at different price levels, ceteris paribus; represents spenders |
| LRAS GDP names | 1. potential GDP, 2. Natural GDP, 3. Natural Unemployment GDP (Fric + Struc = Nat Unemp), 4. full employment GDP, 5. Maximum Sustainable GDP |
| short-run equilibrium | the cond in the economy when the qty demanded of Real GDP = the (short-run) qty supplied of real GDP; where the AD curve and SRAS curve intersect |
| international trade effect | the changes in foreign sector spending as the PL changes; PL down, PP$ up Qty up (buy more) US goods & PL up, PP$ down Qty down (buy less) US goods; house to house movement |
| depreciation | a decrease in the value of one currency relative to other currencies; PP$ down -> US Ex down US Im up -> Nx down -> AD down |
| credit market/loanable funds | where you would use the interest rate effect - PL down, PP$ up = more borrowers <aggregate qty demanded increased>, int rate down & PL up, PP$ down = less borrowers <aggregate qty demanded decreased>, int rate up; s = savers, D = borrowers, int rate y-ax |
| exchange rate | the price of one currency in terms of another currency |
