Macroeconomics

Adaptive expectations:

An approach that assumes

that people form their expectation of a variable

based on recently observed values of the variable.

(Cf. rational expectations.)

Adverse selection:

An unfavorable sorting of

individuals by their own choices; for example, in

efficiency-wage theory, when a wage cut induces

good workers to quit and bad workers to remain

with the firm.

Aggregate:

Total for the whole economy.

Aggregate demand curve:

The negative rela -

tionship between the price level and the aggregate

quantity of output demanded that arises from the

interaction between the goods market and the

money market.

Aggregate-demand externality:

The macro-

economic impact of one firm’s price adjustment on

the demand for all other firms’ products.