Aggregate Supply and Demand

These flashcards cover key concepts related to Aggregate Supply and Demand, focusing on definitions and relationships within the economic model.

Aggregate Supply (AS)

The total quantity of output that firms are willing to supply at each price level.

Aggregate Demand (AD)

The total quantity of goods and services demanded across all levels of the economy at different price levels.

Equilibrium

The point where AS and AD curves intersect, determining the equilibrium level of output and price level.

Natural Rate of Unemployment

The unemployment rate arising from normal labor market frictions when the labor market is in equilibrium.

Classical Supply Curve

A vertical line indicating that goods supplied remain constant regardless of price changes, based on full employment.

Keynesian Supply Curve

A horizontal line indicating that firms will supply all demanded goods at the current price level, especially during periods of unemployment.

Shifts in Aggregate Demand

Changes in AD can occur due to policy measures, consumer confidence, or changes in government spending.

Price Adjustment Mechanism

The process by which prices adjust in response to changes in output relative to potential output (Y*).

Frictional Unemployment

Temporary unemployment occurring when individuals are between jobs or entering the labor market.

Supply Side Economics

An economic theory advocating for lower taxes and less regulation to increase production and economic growth.

Real Money Supply

The nominal money supply adjusted for the price level, affecting the overall demand in the economy.

Potential GDP (Y*)

The level of output corresponding to full employment; the output that an economy can produce without leading to inflation.

AD Curve

Shows the relationship between the price level and the quantity of output demanded; it slopes downward.

Business Cycle

Fluctuations in economic activity characterized by periods of economic expansion and contraction.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Money Supply (MS)

The total amount of monetary assets available in an economy at a specific time.