| accommodating policy | Use of policy to offset a shock. For example, increase in
money supply to prevent increase in interest rate resulting from outward shift in IS curve. See also accommodation of supply shocks.
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| adverse supply shock | Inward shift in the aggregate supply curve. The increase in the price of oil that resulted from the OPEC oil embargo of the early 1970s is a classic example.
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| efficiency wage theory | Theory suggesting that wages might be set above the market clearing rate in order to motivate workers; a possible explanation for wage rigidity, labor market disequilibrium.
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| expectations-augmented Phillips curve | See augmented Phillips curve.
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| favorable supply shock | An economic disturbance which shifts the aggregate supply
outward, implying firms are willing to produce more at any given price level.
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| imperfect information | Incomplete information. Forecasts based on imperfect information will be less than fully accurate, though not necessarily biased.
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| insider-outsider model | Predicts that wages will remain above the market-clearing
level because those who are unemployed do not sit at the bargaining table.
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| Okun’s law | Empirical law relating GDP growth to changes in unemployment; named for its discoverer, the late Arthur Okun.
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| Phillips curve | Relation between inflation and unemployment; in a sense, a dynamic version of the aggregate supply curve.
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| price stickiness | When prices are unable to adjust quickly enough to keep markets in equilibrium.
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| rational expectations | Theory of expectations formation in which expectations are
based on all available information about the underlying economic variable; frequently associated with New Classical macroeconomics.
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| stagflation | Simultaneous inflation and recession.
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| staggered price adjustment | Occurs when firms set their prices or negotiate their contracts at different times.
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| supply shock | An economic disturbance whose first impact is a shift in the aggregate supply curve.
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| unemployment gap | The difference between the actual unemployment rate and the natural rate.
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| unit labor cost | The total amount a firm pays to labor divided by the number of units produced.
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| wage stickiness | When wages are unable to adjust quickly enough to clear the labor market.
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