Aggregate Demand and Aggregate Supply

Flashcards covering key concepts related to Aggregate Demand and Aggregate Supply.

What is aggregate demand?

Aggregate demand is the total demand for all goods and services in an economy.

What is aggregate supply?

Aggregate supply is the total quantity of goods and services all organisations in an economy are willing and able to produce.

What happens when aggregate demand increases?

An increase in aggregate demand leads to economic growth, lower unemployment, but can cause inflation.

What are the consequences of a decrease in aggregate demand?

A decrease in aggregate demand leads to recession, higher unemployment, and deflation.

What are the effects of an increase in aggregate supply?

An increase in aggregate supply expands economic capacity, reduces inflation, and increases employment.

What are the effects of a decrease in aggregate supply?

A decrease in aggregate supply causes cost-push inflation, supply shortages, and reduced economic output.

What is a key similarity between aggregate demand and aggregate supply?

Both are influenced by the overall price level in the economy.

How do changes in aggregate demand or supply affect the economy?

Changes in either aggregate demand or supply can lead to changes in output and employment levels.

What can lower unemployment in an economy?

An increase in aggregate demand can lead to lower unemployment.

What can lead to cost-push inflation?

A decrease in aggregate supply can lead to cost-push inflation.