Full Employment
- Full Employment equilibrium exists where AD intersects SRAS & LRAS at the same point.
- A recessionary gap exists when equilibrium occurs below full employment output.
- An inflationary gap exists when equilibrium occurs beyond full employment output.
Nominal Wages vs. Real Wages
- Nominal wages: the amount of money received by a worker per unit of time.
- Real wages: the amount of goods and services a worker can purchase with their nominal wage.
- Sticky wages: nominal wage level that is set according to an initial price level and it does not vary due to labor contracts or other restrictions.
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