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Aggregate demand
the sum of all market demands for all goods and services
The AD curve relates ____
changes in the price level to changes in aggregate expenditures
3 initial effects of the AD curve
wealth effect, international rate effect, multiplier effect
Short-run aggregate supply curve
aggregate supply changes in the short-run in reaction to a change in the price level
long-run aggregate supply curve
the long-run relationship between aggregate supply and the price level
what does the LAS curve show
the long-run relationship between output and the price level
what does the position of the LAS curve depend on
potential output- which is the amount of goods and services an economy can produce when both capital and labor are fully employed
Why is the LAS vertical
because potential output is unaffected by the price level
shifts of the LAS curve
increases in entrepreneurship, physical capital, technology, and human capital
four shifts in the SAS curve up
increase in input prices, negative expectations, increases in sales and excise taxes, decrease in productivity
4 shifts to the right in the SAS curve
decrease in input prices, positive expectations, decrease in sales, increase in productivity
where is potential output assumed to be
in the middle of a range bounded by high and low levels of potential output
The relationship between potential and actual output also causes the SAS curve to shift:
when resource are over-utilized and under-utilized
