Terry ChoiTerry ChoiSally ParkSally ParkStacy TamStacy TamTina TungTina Tung

The total demand for final goods and services in the economy at a

given time and price level

1. Consumer Expenditure

2. Investment

3. Government Spending

4. Net Export (Export- Import)

Wealth/ Income

Taxation

Expectation on product price

Indebtedness

Expectation on sale of products

Interest rate

New Technology

Business Tax

Increase/ Decrease government spending

Increase/ Decrease taxation

*** decision are mainly controlled by the political party in power

Exchange rate

Condition of other countries (Interdependencies between countries)

The total supply of goods and services that firms in a national

economy plan on selling during a specific time period

1. Inflationary Expectation

2. Resources Price

3. Action of Government

4. Productivity

Inflation in the future

future of business

Increase/ Decrease in resources price

Ex. Price of oil increase

Wages of employees

Taxation

Subsides

New technology

a factor of proportionality that measures how much an endogenous

variable changes in response to a change in some exogenous variable

1. Spending Multiplier

2. Tax Multiplier

3. Money Supply Multiplier

1

MPS+MPI

1

MPS+MPITM =(MPC)

1

reserve ratio

Interest rate investment

borrowing in the money market by government

When the quantity of real output demanded is equal to the quantity of real output supplied, the economy is said to be

in equilibrium

Equilibrium

short run only shows a temporary boom or bust within the economy; long run

reflects how the actual economy looks

Output

Price Level

Recessionary GapRecessionary Gap

Output

Price Level

Inflationary GapInflationary Gap

As an economy grows, there are always inflationary and recessionary periods. However, inflation or recession are not

permanent because the economy is always fluctuating

wages that do not adjust to market shortages of surpluses, also known as rigid or inflexible wages

wages that adjust to the supply and demand in a market

Steady prices that exist without the explanatory rationale

Prices which are able to adjust in either direction, as necessary to clear markets

Sticky Wages: worker’s salaries will not increase even if there is inflation

OROR

Flexible Wages: wages can also fall during shortages if there are no worker unions

Full employment- the “ideal” unemployment rate of an economy- Impossible to have 100% employment- Ideal in the US is 4%

Actual Employment- the actual unemployment rate of an economy- Employment rate in terms of the current

economy- Not an idealistic rate