Chapter 12: National Income and Price Determination

Aggregate demand

Aggregate demand

total demand for goods and services

Aggregate supply (AS)

curve shows total value of output produces are willing + able to supply at different price levels during a certain time

Aggregate demand (AD)

total demand of goods/services

Price level

average level for all prices

Long-run aggregate supply curve (LAS)

stands at level of output that corresponds with full employment

Cost-push (supply inflation)

when inflation is due to increase in resource costs (shifts AS curve to left)

Stagflation

rising prices and falling output

Demand pull inflation

result of AD curve shifting out to the right relative to AS curve

Creeping inflation

inflation at a low rate that remains teady for a long period of time

Galloping inflation

unsteady inflation that exceeds 10% per year and grows monthly

Hyperinflation

rapid price incrase greater than 50% per year

Inflationary gap

amount the equilibrium real GDP would need to increase to reach the LAS

Spending multiplier

number the initial amount of new spending needs to be multiplied by to find total resulting increase in real GDP

Marginal propensity to consume (MPC)

amount consumption increases for every dollar of real income

Marginal propensity to save (MPS)

fraction of each dollar of income that is saved

Fiscal policy

when government tries to counteract fluctuations in aggregate expenditure by changing purchases, transfer payment, taxes