ECN 211 Final Exam Terms

Demand-Pull Inflation Correct Answer-increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand Cost-Push Inflation Correct Answer-increases in the price level (inflation)resulting from an increase in resource costs (for example, raw material prices) and hence in per unit production costs; inflation caused by reductions in aggregate supply Wealth Effect Correct Answer-A change in the real value of wealth that causes spending to change when the level of prices changes Interest Rate Effect Correct Answer-A change in interest rates that causes investment and therefore aggregate expenditures to change as the level of prices changes International Trade Effect Correct Answer-A change in aggregate expenditures resulting from a change in the domestic price level that changes the price of domestic goods relative to that of foreign goods Aggregate Demand Curve Correct Answer-A curve that shows the different equilibrium levels of expenditures on domestic output at different levels of prices Aggregate Supply Curve Correct Answer-A curve that shows the amount of real GDP produced at different price levels Long-Run Aggregate Supply Curve (LRAS) Correct Answer-A vertical line at the potential level of real GDP