Ch 16 - Aggregate Supply and Aggregate Demand

reduction of foreign demand

The shifts the AD to the left, and creates a new equilibrium point.

Business cycle

Is the pattern experienced by the economy.

Short- run Aggregate Supply

Before wages and other resource prices have adjusted to macroeconomic conditions.

price level

When rises, aggregate demand decreases and vise versa.

wealth effect

When households begin to spend more and gain less, this decreases aggregate demand.

Stagflation

Is consistent high inflation paired with high unemployment and stagnant demand in a country’s economy.

Consumer Confidence

is a statistical measure of consumers feelings about current and future economic problems, and is used as indicator of the overall state of the economy.

Peak

end of expansion and the beginning of contraction.

Trough

The end of contraction and the beginning of expansion.

Contraction

A sustained decline in economic activity.

Equilibrium Quantity

The amount of output that results in no shortage or surplus; the amount of goods and services bought and sold in the economy.

LRAS

is vertical due to the amount supplied in the long run which does not depend on the price level.

Economic growth

Is an increase in the production of goods and services in an economy.

Unemployment

since less production means less demand for labor.

Supply shock

An unexpected change in short- run or long- run aggregate supply.

Aggregate demand

Is affected by many factors, however, it can all be categorized in groups.

Foreign Purchaser effect

When price level rises, on reason aggregate demand declines is due to foreign demand decreasing.

Expansion

A sustained improvement in economic activity.

aggregate supply

In the short run, is unaffected as a change in price level is not matched by a change in input costs.

LRAS

An increase in resources or technological advances shifts to the right, while a reduction in resources or a decline in technological productivity shifts to the left.

Aggregate demand

Is the amount of goods and services demanded by households, businesses, governments, and foreigners.

Long- Run Aggregate Supply

After wages and other resource prices have adjusted to macroeconomic conditions.

price level

A rise in leads to an increase in aggregate supply.

Aggregate Supply

is the amount of all goods and services brought to market by all producers.

Aggregate supply

Is measured by dollars instead of value.

Business cycle

is the pattern experienced by the economy

Contraction

a sustained decline in economic activity

Expansion

A sustained improvement in economic activity

Peak

end of expansion and the beginning of contraction

Trough

the end of contraction and the beginning of expansion

Aggregate Supply

is the amount of all goods and services brought to market by all producers

Long-Run Aggregate Supply

aggregate supply after wages and other resource prices have adjusted to macroeconomic conditions

Two shifters of LRAS

Technological advances and increase/decrease in resources

Short-run Aggregate Supply

aggregate supply before wages and other resource prices have adjusted to macroeconomic conditions

Aggregate demand

is the amount of goods and services demanded by households, businesses, governments, and foreigners

Foreign Purchaser effect

When price level rises, on reason aggregate demand declines is due to foreign demand decreasing

The wealth effect

When households begin to spend more and gain less, this decreases aggregate demand

Consumer Confidence

is a statistical measure of consumers feelings about current and future economic problems, and is used as indicator of the overall state of the economy

Foreign purchases effect

foreigners demand less when domestic prices rise because their income have not risen in tandem, and domestic consumers prefer more imports since domestic prices are up2

Wealth effect

financial wealth is destroyed when prices rise, this causes consumers to save more and spend less

Equilibrium Price Level

The price level that equates aggregate supply and aggregate demand; the average level of prices in the economy

Equilibrium Quantity

the amount of output that results in no shortage or surplus; the amount of goods and services bought and sold in the economy

Stagflation

is consistent high inflation paired with high unemployment and stagnant demand in a countrys economy

Supply shock

an unexpected change in short-run or long-run aggregate supply

Economic growth

is an increase in the production of goods and services in an economy

Increasing human capital

when labor becomes better triand and more effective