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RECESSIONARY GAP, KEYNESIAN MODEL: The difference between equilibrium aggregate production achieved in the Keynesian model and full-employment aggregate production that occurs when equilibrium aggregate production is less than full-employment aggregate production. A recessionary gap, also termed a contractionary gap, is associated with a business-cycle contraction. The prescribed Keynesian remedy for a recessionary gap is expansionary fiscal policy. This is one of two alternative output gaps that can occur when equilibrium generates production that differs from full employment. The other is an inflationary gap.

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Lesson 8: Market Shocks | Unit 2: Determinants Page: 4 of 20

Topic: Shifts <=PAGE BACK | PAGE NEXT=>

Shifts in the demand curve are originated by changes in the demand determinants and shifts in the supply curve by changes in the supply determinants.

Determinant changes cause shifts:

  • Increase in demand is a rightward shift.
  • Decrease in demand is a leftward shift.
  • Increase in supply is a rightward shift.
  • decrease in supply is a leftward shift.
Note that:
  • An increase in demand and an increase in supply both are rightward shifts.
  • A decrease in demand and a decrease in supply both are leftward shifts.

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INVESTMENT LINE

A graphical depiction of the relation between investment expenditures by the business sector and the economy's aggregate level of income or production. This relation plays a key role in the study of Keynesian economics. A investment line is characterized by vertical intercept, which indicates autonomous investment, and slope, which is the marginal propensity to invest and indicates induced investment. The aggregate expenditures line used in Keynesian economics is derived by adding or stacking the investment line onto the consumption line, then adding government purchases and net exports to this stack.

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Today, you are likely to spend a great deal of time watching the shopping channel looking to buy either a birthday greeting card for your father or a T-shirt commemorating the first day of spring. Be on the lookout for neighborhood pets, especially belligerent parrots.
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Okun's Law posits that the unemployment rate increases by 1% for every 2% gap between real GDP and full-employment real GDP.
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