Ch.11 Aggregate Supply and Demand in Macro Economy

Macro Economy

The overall economic activity in a country.

Internal Market Forces

Factors like population growth affecting the economy.

External Shocks

Unexpected events impacting economic performance.

Policy Levers

Government actions influencing economic conditions.

Output

Total volume of goods and services produced.

Jobs

Levels of employment and unemployment in the economy.

Prices

Average prices of goods and services in the market.

Growth

Year-to-year expansion in production capacity.

International Balances

Value of the dollar and trade balances internationally.

Aggregate Demand (AD)

Total quantity of output demanded at various price levels.

AD Curve

Graph showing the relationship between price levels and output demanded.

Real Balances Effect

Purchasing power increases as prices fall.

Foreign Trade Effect

Domestic price changes affect import and export demand.

Interest-Rate Effect

Lower prices lead to reduced interest rates and borrowing.

Aggregate Supply (AS)

Total quantity of output producers are willing to supply.

AS Curve

Graph showing the relationship between price levels and output supplied.

Profit Margins

Higher prices increase producers' willingness to supply more.

Costs

Production costs rise as output increases.

Macro Equilibrium

State where aggregate supply equals aggregate demand.

Macro Failure

Inefficiencies in achieving desired economic outcomes.

Undesirability

Equilibrium may not meet macroeconomic goals.

Full-employment GDP

Real GDP produced at full employment levels.

Unemployment

Labor force participants unable to find jobs.

Inflation

Increase in average price levels of goods.

Instability

Equilibrium may be disrupted by economic disturbances.

Leftward Shift of AD

Decreases price levels and output in the economy.

Leftward Shift of AS

Increases price levels and decreases output.