Aggregate Demand and Aggregate Supply

These flashcards cover key vocabulary terms related to aggregate demand and supply in macroeconomics.

Aggregate Demand (AD)

Total demand for the economy’s output of goods and services, represented by the equation AD = C + I + G + NX.

Aggregate Supply (AS)

Total supply of the economy’s output of goods and services, represented as the quantity produced and sold by firms.

Recession

A period of falling incomes and rising unemployment.

Short-Run Economic Fluctuations

Variations in economic activity that occur over a short period, affecting GDP, unemployment, interest rates, and price levels.

Long-Run Aggregate Supply (LRAS) Curve

A vertical curve indicating that in the long run, the output of the economy is determined by factors of production and technology, independent of the price level.

Short-Run Aggregate Supply (SRAS) Curve

An upward sloping curve that shows the total quantity of output supplied at each price level in the short run.

Classical Dichotomy

The separation of real and nominal variables, holding that nominal variables do not affect real outcomes in the long run.

Sticky-Wage Theory

A theory suggesting that nominal wages adjust slowly, leading to short-run deviations in output when the actual price level differs from the expected price level.

Investment Spending

Expenditures made by firms on capital goods, contributing to aggregate demand.

Consumer Spending (C)

The total amount of money spent by households on goods and services that make up the consumer portion of GDP.

What does AD stand for in economics?

AD stands for Aggregate Demand, which is the total demand for all goods and services in an economy at a given overall price level and in a given time period.

What factors can lead to a rightward shift in the AD curve?

Factors that can lead to a rightward shift in the AD curve include an increase in consumer spending, government spending, investment by businesses, or net exports.

What does SRAS stand for?

SRAS stands for Short-Run Aggregate Supply, which is the total production of goods and services in an economy at various price levels in the short run.

What can cause a leftward shift in the SRAS curve?

A leftward shift in the SRAS curve can be caused by increased production costs, supply shocks, or decreased availability of factors of production.

How does a change in technology affect SRAS?

An improvement in technology can increase SRAS by making production more efficient and reducing costs, leading to a rightward shift in the SRAS curve.