Aggregate Demand & Aggregate Supply Analysis

These flashcards cover key concepts related to Aggregate Demand and Aggregate Supply as discussed in the lecture.

What is Aggregate Demand (AD)?

AD is the total demand for goods and services in the economy at a given price level and time period, represented by the equation AD = C + I + G + (X - M).

What does C stand for in the Aggregate Demand equation?

C stands for Consumer Expenditure, which is the spending by households on goods and services.

What are the components of Aggregate Demand?

The components of AD are Consumer Expenditure (C), Investment (I), Government Spending (G), and Net Exports (X - M).

What factors influence consumer expenditure (C)?

Factors include level and distribution of income, changes in interest rates, availability of credit, expectations, and wealth.

How does a rise in income affect consumer expenditure?

When income rises, total spending also rises as people spend more on goods and services.

What is the impact of changes in interest rates on consumer spending?

A fall in interest rates typically leads to an increase in consumer spending.

How does the availability of credit influence consumer expenditure?

Easier access to credit encourages consumers to spend more by using loans and credit cards.

What is the wealth effect in the context of Aggregate Demand?

As the price level rises, the real value of wealth declines, leading to a contraction in AD.

What causes a leftward shift in the Aggregate Demand curve?

Factors such as a decrease in consumer spending, investment, government spending, or net exports can shift AD to the left.

What is the relationship depicted by the Aggregate Demand Curve?

The AD Curve shows the relationship between the price level and the quantity of goods and services demanded.

What are the three effects that explain why AD falls as the price level rises?

The wealth effect, the international effect, and the interest rate effect.

What factors influence investment (I) in Aggregate Demand?

Factors include consumer demand, interest rates, technology advancement, cost of capital goods, expectations, and government policy.

How do expectations impact investment decisions?

If firms have confidence in the economy, they are likely to increase investments.

How does government policy affect Aggregate Demand?

Government actions like tax cuts or subsidies can directly stimulate AD by increasing spending.

What happens at macro-equilibrium?

At macro-equilibrium, aggregate demand equals aggregate supply (AD = AS), determining the output level and price level.

What is a shift in the Aggregate Supply curve?

A shift occurs due to changes in factors like production cost, taxes, and the quality or quantity of resources.

What indicates an increase in Aggregate Supply (AS)?

An increase occurs with a decrease in production costs or an increase in resource availability.

What are the long-run and short-run concepts of Aggregate Supply?

Long-run AS allows for changes in input costs while short-run AS is influenced by fixed input costs.

What does an increase in AD imply about the economy?

An increase in AD reflects economic growth, which can lead to higher output and employment, but also potentially higher prices.

Why might an increase in aggregate demand leave the price level unchanged?

If aggregate supply is increasing by a greater amount than the demand, the price level may remain stable.

What is photosynthesis?

Photosynthesis is the process by which green plants and some other organisms use sunlight to synthesize foods with the help of chlorophyll.

Define cellular respiration.

Cellular respiration is the biochemical process in which cells convert glucose and oxygen into energy, carbon dioxide, and water.

What is the role of mitochondria in cells?

Mitochondria are known as the powerhouse of the cell because they produce the energy currency of the cell, ATP, through cellular respiration.

Describe the structure of DNA.

DNA is composed of two long strands forming a double helix, made from sequences of nucleotides, which include adenine (A), thymine (T), cytosine (C), and guanine (G).

What is the function of ribosomes?

Ribosomes are cellular structures that synthesize proteins by translating messenger RNA (mRNA) into polypeptide chains.

What is the purpose of meiosis?

Meiosis is a type of cell division that reduces the chromosome number by half, creating four haploid cells, important for sexual reproduction.

What are ecosystems?

Ecosystems are communities of living organisms together with their physical environment, interacting as a system.

Define homeostasis.

Homeostasis is the process by which living organisms regulate their internal environment to maintain stable, constant conditions.