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    Defining Economic Terms

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    Define and discuss

    - Stagflation

    - Real and nominal variables

    - Marginal productivity theory of distribution

    - Business cycle

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    https://brainmass.com/economics/exchange-rates/defining-economic-terms-2570

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    BrainMass Posting # 2570

    Define and Discuss:-

    (i) Stagflation
    (ii) Real and nominal variables
    (iii) marginal productivity theory of distribution
    (iv) business cycle

    i) Stagflation: Stagflation is a combination of inflation and a contraction of real GDP. Unlike regular inflation, this event is a one-time rise in the price level.
    Suppose, that last year price level was 110 and real GDP was $7 trillion. Potential real GDP was also $7 trillion. The following figure illustrates the situation. The aggregate demand curve was AD0, the short-run aggregate supply curve was SAS0, and the long-run aggregate supply curve was LAS. In the current year, the world's oil producers form a price-fixing organization.

    Price Level LAS SAS1

    120 SAS0
    117

    110

    100

    0 6.0 6.5 7.0 7.5 8.0 8.5
    Real GDP (trillion $)

    FIGURE: Showing stagflation

    Initially, the aggregate demand curve is AD0, the short-run aggregate supply ...

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