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| 9649566380 | Classical View | Belief in free enterprise and free trade; the aggregate supply curve is vertical and is the sole determinant of the level of real output. The down sloping aggregate demand curve is stable and is the sole determinant of the price level. | 0 | |
| 9649566381 | Keynesian View | Product prices and wages are downwardly inflexible over very long time periods. The result is graphically represented as a horizontal aggregate supply curve. Also, aggregate demand is subject to periodic changes caused by changes in the determinants of aggregate demand. | 1 | |
| 9649566382 | Monetarism | an economic theory holding that variations in unemployment and the rate of inflation are usually caused by changes in the supply of money; a theory that government should control the money supply to encourage economic growth and restrain inflation; an economic theory holding that the supply of money is the key to a nation's economic health. Monetarists believe that too much cash and credit in circulation produces inflation; the macroeconomic view that the main cause of changes in aggregate output and the price level is fluctuations in the money supply; espoused by advocates of a monetary rule. | 2 | |
| 9649566383 | Equation of Exchange | MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of output of goods and services produced in an economy. | 3 | |
| 9649566384 | Velocity | The number of times per year that the average dollar in the money supply is spent for final goods and services; nominal GDP divided by the money supply. | 4 | |
| 9649566385 | Real-Business-Cycle Theory | A theory to explain the business cycle developed by new classical economists that is based on outside shocks to the fundamental structure of the economy, which consists of household preferences, resources, and production technologies; a theory that business cycles result from changes in technology and resource availability, which affect productivity and thus increase or decrease long-run aggregate supply. | 5 | |
| 9649566386 | Coordination Failures | Occurs when people fail to reach a mutually beneficial equilibrium because they lack a way to coordinate their actions, fourth view of macroeconomic instability - bad equilibrium = coordination failure. | 6 | |
| 9649566387 | Rational Expectations Theory | The hypothesis that firms and households expect monetary and fiscal policies to have certain effects on the economy and (in pursuit of their own self-interest) take actions that make these policies ineffective. | 7 | |
| 9649566388 | New Classical Economics | Theory that although unanticipated price level changes may create macroeconomic instability, the economy is stable at the full employment level of domestic output in the long run because prices and wages adjust automatically to correct movements away form the full employment, noninflationary output. | 8 | |
| 9649566389 | Price-level Surprises | unanticipated changes in price level. | 9 | |
| 9649566390 | Efficiency Wage | A wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover. | 10 | |
| 9649566391 | Insider-Outsider Theory | The hypothesis that nominal wages are inflexible downward because firms are aware that workers ("insiders") who retain employment during recession may refuse to work cooperatively with previously unemployed workers ("outsiders") who offer to work for less than the current wage. | 11 | |
| 9649566392 | Monetary Rule | The rule suggested by monetarism as traditionally formulated, the rule says that the money supply should be expounded each year at the same annual rate as the potential rate of growth of the annual rate as the potential rate of growth of the real GDP; the supply of money should be increased steadily between 3 and 5 percent per year. | 12 |
