Aggregate Graphs

Full Employment:

Full employment equilibrium exists where AD intersects with SRAS and LRAS

Recessionary Gap:

exists when equilibrium occurs below full employment output

Inflationary Gap:

exists when equilibrium occurs beyond full employment output

Keynesian Model:

Keynesian (Recession):

• Prices; fixed
• Wages; fixed
• Employment; flexible 
• Depends on changes in employment level

Classical/Vertical (Inflation):

• Price; flexible
• Wages; flexible
• Employment; fixed
• Independent of changes in price level

Nominal Wages:

• amount of money received by a worker per unit of time

Real Wages:

• amount of goods and services that a worker can purchase with their nominal wages 
• purchasing power of nominal wages

Sticky Wages:

• nominal wage level set according to an initial price level that does not vary due to the labor contracts or other restrictions