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IMPLICIT COST: An opportunity cost that does NOT involve a money payment or a market transaction. This should be contrasted with explicit cost that DOES involve a money payment or a market transaction. The common misconception among non-economists out there in the real world is that the term "cost" is synonymous with the term "payment," that is, all costs are explicit costs, to be a cost you have to give up some money. Well, I'm here to tell you that this isn't true. Cost is opportunity cost. It's the satisfaction NOT received from activities NOT pursued. It's the value of foregone production. And not all opportunity costs involve a money payment.

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Lesson 13: Aggregate Demand | Unit 3: The Curve Page: 12 of 22

Topic: Real-Balance Effect <=PAGE BACK | PAGE NEXT=>

The amount of production we purchase depends on how much money we have and the price of the production we want to buy.
  • A higher price level means money can buy less real production.
  • A lower price level means money can buy more real production.
The real-balance effect is when a change in the price level changes aggregate expenditures on real production because the purchasing power of money changes.
  • Real refers to the real purchasing power of money.
  • Balances refers to the balance of money we have to purchase.

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AGGREGATE SUPPLY INCREASE, SHORT-RUN AGGREGATE MARKET

A shock to the short-run aggregate market caused by an increase in aggregate supply, resulting in and illustrated by a rightward shift of the short-run aggregate supply curve. An increase in aggregate supply in the short-run aggregate market results in a decrease in the price level and an increase in real production. The level of real production resulting from the shock can be greater or less than full-employment real production.

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On a typical day, the United States Mint produces over $1 million worth of dimes.
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