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New Classical Model definitions

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  • Potential GDP
    Represents the maximum output an economy can achieve when all resources are fully employed and operating efficiently.
  • Full Employment
    Occurs when all available labor resources are being used in the most efficient way, with minimal cyclical unemployment.
  • Flexible Wages
    Describes compensation that can quickly adjust in response to changes in supply and demand within the labor market.
  • Flexible Prices
    Refers to the ability of goods and services' prices to rapidly change in response to market conditions.
  • Rational Expectations
    Involves economic agents using all available information to predict future variables, influencing current decisions.
  • Inflation Expectations
    Represents beliefs about future price increases, affecting wage negotiations and business planning.
  • Actual Inflation
    Measures the real rate at which prices rise over a period, impacting economic outcomes when differing from forecasts.
  • Short-Run Phillips Curve
    Illustrates the relationship between inflation and unemployment, shifting when expectations about inflation change.
  • Monetary Growth Rule
    A guideline for steady increases in money supply, aiming to stabilize economic expectations and outcomes.
  • Money Supply
    Total amount of monetary assets available in an economy, influencing inflation and economic activity.
  • Market Equilibrium
    Occurs when supply and demand balance, resulting in stable prices and efficient resource allocation.
  • Monetarist Model
    Emphasizes the role of money supply in determining economic performance and supports steady monetary expansion.
  • Classical Model
    Suggests economies naturally operate at full employment with flexible prices and minimal government intervention.
  • Keynesian Model
    Focuses on sticky prices and wages, advocating government action to address recessions and inflation.
  • Economic Repercussions
    Consequences arising from mismatches between expected and actual economic variables, affecting unemployment and inflation.