Aggregate Supply and Demand in Macroeconomics

These flashcards cover key concepts from Chapter 10 on Aggregate Supply and Aggregate Demand in Macroeconomics.

Aggregate Supply

The relationship between the quantity of real GDP supplied and the price level.

Long-run Aggregate Supply (LAS)

The quantity of real GDP supplied when real GDP equals potential GDP, represented by a vertical curve.

Potential GDP

The maximum level of output an economy can sustain without causing accelerating inflation.

Short-run Aggregate Supply (SAS)

The relationship between quantity of real GDP supplied and price level when the wage rate and prices of other resources are constant.

Changes in Aggregate Supply

Factors that can shift the aggregate supply curve include changes in potential GDP, wage rates, and prices of production factors.

Aggregate Demand

The relationship between the quantity of real GDP demanded and the price level.

Shift Factors of Aggregate Demand

Factors such as expectations, fiscal policy, monetary policy, and changes in the world economy that can shift the aggregate demand curve.

Fiscal Policy

Government's attempts to influence the economy by changing taxes and government spending.

Monetary Policy

The Fed's attempt to influence the economy by changing interest rates and adjusting the quantity of money.

Macroeconomic Equilibrium

Occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied.

Inflationary Gap

The situation when real GDP exceeds potential GDP.

Recessionary Gap

The situation when potential GDP exceeds real GDP.

Business Cycle

Fluctuations in aggregate demand and short-run aggregate supply that prevent real GDP from staying at potential GDP.

Stagflation

An economic condition characterized by high inflation and stagnant economic growth.

Economic Growth

An increase in potential GDP as the long-run aggregate supply curve shifts rightward.