Economics Chapter 24

short-run fluctuations in output and employment and long-run economic growth.

Negative real growth in output.

Economies experience a positive growth trend over the long run but experience significant variability in the short run.

Inflation lowers the standard of living for people whose income does not increase as fast as the price level.

real output per person.

sacrifice current consumption.

promote economic growth by helping to direct household saving to businesses that want to invest.

Consumers become worried about job loss and buy fewer goods and services than expected.

A dramatic increase in energy prices increases production costs for firms in the economy.

Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels.

Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.

firms should be allowed to go bankrupt, allowing the economy to correct for resource misallocations.