the relationship between the total spending on domestic goods and services and the price level for output
aggregate demand (AD)
the relationship between the total spending in an economy on domestic goods and services and the price level for output
aggregate production function
the process whereby an economy as a whole turns economic inputs such as human capital, physical capital, and technology into output measured as GDP per capita
aggregate supply (AS) curve
the relationship between real GDP and the price level for output, holding the price of inputs fixed
aggregate supply (AS)
the relationship between real GDP and the price level for output, holding the price of inputs fixed
aggregate supply–aggregate demand model
a model that shows what determines total supply or total demand for the economy, and how total demand and total supply interact at the macroeconomic level
business cycle
the relatively short-term movement of the economy in and out of recession
capital deepening
an increase by society in the average level of physical and/or human capital per person
compound growth rate
the rate of growth when multiplied by a base that includes past GDP growth
contractual rights
the rights of individuals to enter into agreements with others regarding the use of their property providing recourse through the legal system in the event of noncompliance
convergence
pattern in which economies with low per capita incomes grow faster than economies with high per capita incomes
depression
an especially lengthy and deep decline in output
full-employment GDP
another name for potential GDP, when the economy is producing at its potential and unemployment is at the natural rate of unemployment
human capital
the accumulated skills and education of workers
Industrial Revolution
the widespread use of power-driven machinery and the economic and social changes that occurred in the first half of the 1800s
infrastructure
a component of physical capital such as roads, rail systems, and so on
innovation
putting advances in knowledge to use in a new product or service
intermediate zone
portion of the AS curve where GDP is below potential but not so far below as in the Keynesian zone; the AS curve is upward-sloping, but not vertical in the intermediate zone
invention
advances in knowledge
Keynesian zone
portion of the AS curve where GDP is far below potential and the AS curve is flat
Keynes’ law
“demand creates its own supply”
labor productivity
the value of what is produced per worker, or per hour worked (sometimes called worker productivity)
modern economic growth
the period of rapid economic growth from 1870 onward
neoclassical economists
economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the long run
neoclassical zone
portion of the AS curve where GDP is at or near potential output where the AS curve is steep
peak
during the business cycle, the highest point of output before a recession begins
physical capital
the plant and equipment used by firms in production; this includes infrastructure
potential GDP
the maximum quantity that an economy can produce given full employment of its existing levels of labor, physical capital, technology, and institutions
production function
the process whereby a firm turns economic inputs like labor, machinery, and raw materials into outputs like goods and services used by consumers
recession
a significant decline in national output
rule of law
the process of enacting laws that protect individual and entity rights to use their property as they see fit. Laws must be clear, public, fair, and enforced, and applicable to all members of society
Say’s law
“supply creates its own demand”
special economic zone (SEZ)
area of a country, usually with access to a port where, among other benefits, the government does not tax trade
stagflation
an economy experiences stagnant growth and high inflation at the same time
technological change
a combination of invention—advances in knowledge—and innovation
technology
all the ways in which existing inputs produce more or higher quality, as well as different and altogether new products
trough
during the business cycle, the lowest point of output in a recession, before a recovery begins
