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MATURITY: That date at which the principal on a bond or similar financial asset needs to be repaid. Maturity dates can be anywhere from a few hours to 30 or more years. For example, government securities are classified by their maturity dates, with Treasury bills maturing in one year or less, Treasury notes in 1 to 10 years, and Treasury bonds in 10 years or more. Under normal (nonrecessionary) conditions, shorter maturity periods carry lower interest rates, while longer maturities need higher interest rates to compensate for the uncertainty of tying funds up for longer periods.

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Lesson 16: Aggregate Shocks | Unit 2: Extension Page: 5 of 21

Topic: Self-Correction <=PAGE BACK | PAGE NEXT=>

The aggregate market has a perpetual inclination to adjust from short-run equilibrium to long-run equilibrium.
  • The aggregate market self-correction mechanism relies on wages, the key production cost determinant.
  • Short-run labor market imbalances induce wage changes that move the aggregate market to long-run equilibrium.

A recessionary gap Unemployment causes lower wages and production costs, and an increase in short-run aggregate supply.

An inflationary gap Labor market imbalances increase wages and production cost, and decrease in short-run aggregate supply.

Long run equilibrium is restored in both cases.


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ALLOCATION EFFECT

A change in the allocation of resources caused by placing taxes on economic activity. By creating disincentives to produce, consume, or exchange, taxes generally alter resource allocations. The allocation effect is typically used when governments seek to discourage the production, consumption, or exchange of particular goods or activities that are deemed undesirable (such as tobacco use or pollution). This is one of two effects of taxation. The other (primary) is the revenue effect, which is the generation of revenue used to finance government operations.

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Today, you are likely to spend a great deal of time at a garage sale trying to buy either a birthday gift for your mother or a weathervane with a horse on top. Be on the lookout for pencil sharpeners with an attitude.
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A scripophilist is one who collects rare stock and bond certificates, usually from extinct companies.
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-- Helen Keller, author, lecturer

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