Skip to ContentGo to accessibility page
OpenStax Logo
Principles of Economics 3e

Key Terms

Principles of Economics 3eKey Terms

Key Terms

contractionary fiscal policy
tax increases or cuts in government spending designed to decrease aggregate demand and reduce inflationary pressures
coordination argument
downward wage and price flexibility requires perfect information about the level of lower compensation acceptable to other laborers and market participants
disposable income
income after taxes
expansionary fiscal policy
tax cuts or increases in government spending designed to stimulate aggregate demand and move the economy out of recession
expenditure multiplier
Keynesian concept that asserts that a change in autonomous spending causes a more than proportionate change in real GDP
inflationary gap
equilibrium at a level of output above potential GDP
macroeconomic externality
occurs when what happens at the macro level is different from what happens at the micro level; an example would be where, because of the coordination argument, upward sloping supply curves for firms become a flat aggregate supply curve, illustrating that the price level cannot fall to stimulate aggregate demand
menu costs
costs firms face in changing prices
Phillips curve
the tradeoff between unemployment and inflation
real GDP
the amount of goods and services actually sold in a nation
recessionary gap
equilibrium at a level of output below potential GDP
sticky wages and prices
a situation where wages and prices do not fall in response to a decrease in demand, or do not rise in response to an increase in demand
PreviousNext
Order a print copy
Citation/Attribution
Reuse and redistribution of this content in digital or print format:
  • This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's prior written permission.
  • This book uses the Creative Commons Attribution-NonCommercial-ShareAlike License, which means that you can reuse and modify the material only for noncommercial purposes, must attribute OpenStax, and must distribute any derivative works under the same license.
  • Any commercial printing of this textbook, including using a local or custom printer, must be approved by OpenStax, and proper citation provided.
  • OpenStax-copyrighted images, activities, assessments, and similar components of this book are subject to the same licensing – CC-BY-NC-SA. They can be used for noncommercial purposes with attribution. Commercial use requires permission.
  • Permission requests: Anyone who intends to incorporate this content (including text, images, and other components) into large language models, use it in AI offerings, use it commercially (including in print), and/or has questions about another use case is welcome to complete our reuse request form.
Attribution information
  • If you are redistributing all or part of this book in a noncommercial print format, then you must include on every physical page the following attribution:

    Access for free at https://openstax.org/books/principles-economics-3e/pages/1-introduction

  • If you are redistributing all or part of this book in a noncommercial digital format, then for every page that includes OpenStax content, you must license the derivative work under the same CC-BY-NC-SA license as the original, and include on every digital page view the following attribution:

    Access for free at https://openstax.org/books/principles-economics-3e/pages/1-introduction

Citation information

The information below includes the information needed to generate citations in most major styles (APA, MLA, etc.); you must reformat and organize the information as needed to fit the requirements of the style. Use the information below to generate a citation. We recommend using a citation tool such as this one.

© Jul 9, 2026 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License. The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo, and Rice University name, and Rice University logo trademarks, or wordmarks are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.