Aggregate Demand and Aggregate Supply

These flashcards cover key concepts related to Aggregate Demand and Aggregate Supply, essential for understanding GDP dynamics and economic policies.

Aggregate Demand (AD)

The total demand for goods and services within an economy at a given overall price level and in a given time period.

Components of GDP

Sources of demand, including personal consumption, investment, government purchases, and net exports.

Personal Consumption

The total spending by households on goods and services.

Net Exports

The value of a country's exports minus the value of its imports.

Multiplier Effect

The concept that an increase in spending produces an increase in national income and consumption greater than the initial amount spent.

Marginal Propensity to Consume

The increase in consumer spending when disposable income rises by $1.

Long-Run Aggregate Supply (LRAS)

The total amount of goods and services that can be produced in an economy when resources are fully employed.

Short-Run Aggregate Supply (SRAS)

The total production of goods and services in an economy at different price levels in the short-run.

Recessionary Gap

An economic situation where real GDP is lower than potential GDP, indicating unused resources.

Inflationary Gap

An economic situation where real GDP exceeds potential GDP, typically leading to inflation.

Fiscal Policy

Government spending policies that influence macroeconomic conditions.

Monetary Policy

The process by which the central bank manages the supply of money and interest rates in the economy.

Stabilization Policy

Government policy aimed at maintaining economic stability and avoiding large swings in the economy.