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ZERO-BASE BUDGET: A method of budgeting expenditures in which each expenditure is justified on its overall merits rather than being based on the budget for the previous year. A zero-base budget is most often proposed (but seldom implemented) for governments. Governments generally establish budget expenditures based on expenditures for the previous year. If, for example, budget expenditures last year were $100 billion, the requested budget for this year might be set at $110 billion. The existing $100 billion is a "given" and only the extra $10 billion is justified. With a zero-base budget, the entire $110 billion is justified.

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Lesson 15: Aggregate Market | Unit 4: Self Correction Page: 16 of 22

Topic: Short Run <=PAGE BACK | PAGE NEXT=>

The aggregate market, which is typically at or near short-run equilibrium, is persistently motivated to seek out the long-run equilibrium.
  • This motivation comes from an imbalance in the labor market created by rigid wages, temporarily tapping into frictional and structural unemployment, and misperceptions about the real wage.
  • The imbalance is temporary. The macroeconomy will automatically move toward long-run equilibrium and full employment.
  • Wages are flexible in the long run, but rigid in the short run. This is the key to the self-correction mechanism of the aggregate market.

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EQUILIBRIUM

A state that exists when opposing forces are in balance, with each force exactly offsetting the other, such that there is no inherent tendency for change. Once achieved, an equilibrium persists unless or until it is disrupted by an outside force. The notion of equilibrium is an essential feature in most economic models, such as the market model.

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Today, you are likely to spend a great deal of time touring the new suburban shopping complex looking to buy either a how-to book on meeting people or clothing for your pet iguana. Be on the lookout for a thesaurus filled with typos.
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Paper money used by the Commonwealth of Massachusetts prior to the U.S. Revolutionary War, which was issued against the dictates of Britain, was designed by patriot and silversmith, Paul Revere.
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