9.6 Key Terms
The total spending in an economy on domestic goods and services, including consumption expenditure, investment expenditure, government expenditure, and net export expenditure (exports minus imports).
The total spending on domestic goods and services at each price level.
The total quantity of output (real GDP) firms will produce.
The total quantity of output firms will produce and sell at each aggregate price level, holding the price on inputs fixed.
A country's exchange rate is the price of its currency in terms of another currency.
If Canadian prices rise in relative to other countries, then Canadian goods will be relatively more expensive compared to goods in the rest of the world and will reduce net export expenditures.
Potential GDP where machines and factories are running at capacity, and the unemployment rate is at its natural rate of unemployment.
The gap between the level of real GDP and potential output, when real GDP is greater than potential.
As prices for outputs rise, the same purchases will take more money or credit to accomplish. The additional demand will push interest rates higher which will reduce borrowing, thus reducing consumption and investment spending.
The vertical line showing the relationship between price and real GDP if all prices, including wages, are fully flexible at potential GDP.
When real GDP equals potential GDP.
The gap between the level of real GDP and potential output, when real GDP is less than potential.
The period of time that wages are sticky so an upwards sloping curve shows the quantity of total output at each price level.
The intersection of the aggregate supply and aggregate demand curves showing the level of real GDP and the equilibrium price level.
A situation when the economy faces decrease in real GDP combined with rising inflation.
As the price level increases, the buying power of savings that people have stored up in bank accounts and other assets will diminish.
