Demand-pull inflation is caused by increased demand, while cost-push inflation is caused by decreased supply due to increased costs.

Nominal variables are measured in monetary units, while real variables are adjusted for inflation and measure actual quantities.

Fiscal policy involves government spending and taxation, while monetary policy involves managing the money supply and interest rates.

Demand-pull inflation is caused by excess demand, while cost-push inflation is caused by rising production costs.

Demand-pull inflation can be addressed with contractionary policies, while cost-push inflation is more difficult to address and may require supply-side policies.

In the short run, monetary policy can affect both nominal and real variables, while in the long run, it primarily affects nominal variables according to monetary neutrality.

Lowering the reserve ratio allows banks to lend out more of their deposits, while lowering the discount rate makes it cheaper for banks to borrow from the Fed.

Price level is the average of current prices across the entire spectrum of goods and services in the economy. Real GDP is inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year.

AD is the total demand for goods and services in an economy at a given price level and time period. SRAS is the total supply of goods and services that firms plan to sell at a given price level and time period.

The equilibrium price level is the price at which the quantity of goods supplied equals the quantity of goods demanded. The equilibrium output is the quantity of goods and services produced at the equilibrium price level.

A rise in the general price level in an economy.

Inflation caused by increased consumer demand shifting the AD curve to the right.

Inflation caused by decreased production due to increased input costs or supply shocks shifting SRAS left.

A self-perpetuating cycle where demand-pull and cost-push inflation reinforce each other.

The idea that changes in the money supply only affect nominal variables, not real variables.

How quickly money is spent and re-spent in an economy.

Theory stating that at a constant velocity and GDP, an increase in the money supply leads to a proportional increase in prices.

The buying and selling of government bonds by the Federal Reserve to influence the money supply.

The fraction of a bank's deposits that it is required to keep in reserve.

The interest rate at which commercial banks can borrow money directly from the Fed.

Increasing the money supply leads to lower interest rates.

Increased government spending boosts Aggregate Demand, shifting the AD curve to the right.

Labor shortages increase input costs, leading to cost-push inflation.

The Fed sells government bonds to decrease the money supply, which can cool down inflation.

In the long run, changes in the money supply only affect nominal variables like prices, not real variables like output.

A decrease in consumer confidence decreases consumer spending, reducing the likelihood of demand-pull inflation.

A negative supply shock shifts the SRAS curve to the left, leading to higher prices and lower output.

A central bank can use contractionary monetary policy to reduce aggregate demand and control demand-pull inflation.

Lower interest rates encourage borrowing and spending, increasing aggregate demand and potentially causing demand-pull inflation.

Increased productivity can offset increased input costs, reducing the likelihood of cost-push inflation.