Key Terms

Key Terms

contractionary fiscal policy
tax increases or cuts in government spending designed to decrease aggregate demand and reduce inflationary pressures
coordination argument
downward wage and price flexibility requires perfect information about the level of lower compensation acceptable to other laborers and market participants
disposable income
income after taxes
expansionary fiscal policy
tax cuts or increases in government spending designed to stimulate aggregate demand and move the economy out of recession
expenditure multiplier
Keynesian concept that asserts that a change in autonomous spending causes a more than proportionate change in real GDP
inflationary gap
equilibrium at a level of output above potential GDP
macroeconomic externality
when what happens at the macro level is different from and inferior to what happens at the micro level; an example is when upward-sloping supply curves for firms become a flat aggregate supply curve, illustrating that the price level cannot fall to stimulate aggregate demand
menu costs
costs firms face in changing prices
Phillips curve
the tradeoff between unemployment and inflation
real GDP
the amount of goods and services actually being sold in a nation
recessionary gap
equilibrium at a level of output below potential GDP
sticky wages and prices
when wages and prices do not fall in response to a decrease in demand, or do not rise in response to an increase in demand