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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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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



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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