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Aggregate Demand Curve
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The curve showing the relationship between the price level and the quantity of aggregate output demanded when the goods and money markets are in equilibrium
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Aggregate Supply Curve
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The curve showing the relationship between the quantity of output supplied and the price level
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Consumption Expenditure
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The total demand for consumer goods and services
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Cost-Push Shocks
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Price shocks that occur when workers push for wages that are higher than productivity gains, thereby driving up costs and inflation
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Demand Shocks
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Shocks that can shift the aggregate demand curve, including changes in the money supply, changes in government expenditure and taxes, and changes in net exports, changes in consumer and business spending and financial frictions
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General Equilibrium
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Occurs when all markets are simultaneously in equilibrium, at the point where the quantity of aggregate output demanded equals the quantity of aggregate output supplied
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Government Purchases
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Spending by all levels of government (federal, state, and local) on goods and services
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Inflation Shocks
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Shifts in inflation that are independent of the amount of slack in the economy or expected inflation
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Natural Rate of Output
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The level of aggregate output produced at the natural rate of unemployment -the rate at which there is no tendency for wages or prices to change
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Natural Rate of Unemployment
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The rate of unemployment consistent with full employment; the rate at which the demand for labor equals the supply of labor
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Net Exports
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Net foreign spending on domestic goods and services, equal to exports minus imports
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Output Gap
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The difference between aggregate output and potential output
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Planned Investment Spending
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Total planned spending by businesses on new physical capital (e.g., machines, computers, apartment buildings) plus planned spending on new homes
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Potential Output
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The level of aggregate output produced at the natural rate of unemployment (also called the natural rate of output)
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Real Business Cycle Theory
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A theory that views real shocks to tastes and technology as the major driving force behind short-run business cycle fluctuation
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Self-Correcting Mechanism
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A characteristic of the economy that causes output to return eventually to the natural rate level, regardless of where it lies initially
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Stagflation
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A situation of rising inflation but falling level of aggregate output
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Supply Shocks
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Any change in technology or the supply of raw materials that can shift the aggregate supply curve
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