Economic Fluctuations: Aggregate Demand and Supply

These flashcards cover key terminology and concepts related to economic fluctuations, focusing on aggregate demand and supply.

Economic Fluctuations

Variations in economic activity that can occur over time, including periods of growth and decline.

Recession

An economic contraction characterized by declining real incomes and rising unemployment.

Depression

A severe and prolonged recession that leads to significant declines in economic activity.

Business Cycle

The cycle of economic expansions and contractions that occurs over time.

Aggregate Demand (AD)

The total quantity of goods and services demanded across all levels of the economy at a given overall price level.

Aggregate Supply (AS)

The total quantity of goods and services that producers are willing and able to supply at a given price level.

Short-Run Economic Fluctuations

Changes in economic output and employment that occur due to shifts in AD and AS in the short term.

Long-Run Aggregate-Supply Curve (LRAS)

A vertical curve that represents the total output of goods and services achievable at full employment, unaffected by the price level.

Wealth Effect

The phenomenon where a decrease in price level increases the real value of money, leading to increased consumer spending.

Sticky-Wage Theory

The theory that nominal wages are slow to adjust to changing economic conditions, affecting employment and production.

Fiscal Policy

Government policy regarding spending and taxation aimed at influencing economic activity.

Monetary Policy

The process by which the central bank manages the money supply and interest rates to influence economic activity.

Stagflation

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

AD-AS Model

A macroeconomic model that demonstrates the interaction between aggregate demand and aggregate supply.

Policy Response

Actions taken by government or central banks to stabilize the economy during periods of economic downturn.

Natural Level of Output

The level of output that an economy can produce when operating at full employment.

Exchange-Rate Effect

The impact of changes in price levels on a country's exchange rate, affecting net exports.

Investment Spending

Expenses or expenditures by businesses on capital goods that will be used for future production.