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ADJUSTMENT, SHORT-RUN AGGREGATE MARKET: Disequilibrium in the short-run aggregate market induces changes in the price level that restore equilibrium. If the price level is above the short-run equilibrium price level, economy-wide product market surpluses cause the price level to fall. If the price level is below the short-run equilibrium price level, economy-wide product market shortages cause the price level to rise. In both cases short-run equilibrium is restored. You might want to compare adjustment, long-run aggregate market. Price level changes induce changes in both aggregate expenditures and real production. Unlike the long-run aggregate market, changes in the price level can induce changes in short-run aggregate supply, making it greater or less than full-employment real production.
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Lesson 11: Circular Flow | Unit 3: Government
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Page: 13 of 22
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Topic:
Government Purchases
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Government spending is divided into government purchases of GDP and transfer payments.- Transfer payments include welfare to the poor, unemployment compensation, and Social Security benefits.
- Transfer payments are like negative taxes, but flow from the government sector to the household sector.
- The circular tax flow is the net tax flow from households to government, taxes minus transfer payments.
- Government purchases are the green flow from the government sector to the product markets.
- As an expenditure on GDP, government purchases are comparable to consumption by the household sector and investment by the business sector.
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ADVERSE SELECTION An inefficient, bad, or adverse outcome of a market exchange that results because buyers and/or sellers make decisions based on asymmetric information. This commonly results in a market that exchanges a lesser quality good, what is termed the market for lemons. Two related problems resulting from asymmetric information are moral hazard and the principal-agent problem. Two methods of lessoning the problem of adverse selection are signalling and screening.
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BLACK DISMALAPOD
[What's This?]
Today, you are likely to spend a great deal of time touring the new suburban shopping complex trying to buy either a velvet painting of Elvis Presley or a wall poster commemorating yesterday. Be on the lookout for poorly written technical manuals.
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Two and a half gallons of oil are needed to produce one automobile tire.
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"It's usually the last ounce of effort that tips the scales of success." -- Rick Beneteau
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S&D
Supply and Demand
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