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ADJUSTMENT, LONG-RUN AGGREGATE MARKET: Disequilibrium in the long-run aggregate market induces changes in the price level that restore equilibrium. If the price level is above the long-run equilibrium price level, economy-wide product market surpluses cause the price level to fall. If the price level is below the long-run equilibrium price level, economy-wide product market shortages cause the price level to rise. In both cases long-run equilibrium is restored. Price level changes induce changes in aggregate expenditures but NOT changes in real production. The reason is that long-run aggregate supply is full-employment real production, which is unaffected by the price level.
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INVESTMENT, PRODUCTION POSSIBILITIES Investment typically refers to the purchase of productive capital by business in anticipation of increasing production and (presumably) generating more profit. More generally, investment can be considered as sacrificing the current satisfaction of wants and needs (consumption goods) to expand productive capability (capital goods). Production possibilities analysis can be used to illustrate the tradeoff between consumption and capital as a movement along a production possibilities curve.
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GRAY SKITTERY
[What's This?]
Today, you are likely to spend a great deal of time searching for rummage sales looking to buy either a half-dozen helium filled balloons or a packet of address labels large enough for addresses of both the sender and the recipient. Be on the lookout for defective microphones.
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This isn't me! What am I?
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Three-forths of the gold mined each year is used to manufacture jewelry.
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"Opportunities are usually disguised as hard work, so most people don't recognize them." -- Ann Landers, columnist
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IADB
Inter-American Development Bank
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