AD AS models

Aggregate demand (AD)

Planned spending on domestic goods and services at different average price levels, per period of time. Consists of consumption, investment and government expenditures plus net exports.

Consumption (C)

Spending by households on durable and non-durable goods and on services over a period of time.

Direct taxes

Taxes on income, profits or wealth paid directly to the government.

Short run in macroeconomics

The period of time when the prices of factors of production, especially wages, are considered fixed.

Aggregate demand curve

A curve showing the planned level of spending on domestic output at different average price levels.

Investment (I)

Spending by firms on capital goods such as machines, tools, equipment and factories.

Government spending (G)

Refers to all spending by the government that is distinguished into current expenditures, capital expenditures and transfer payments.

Net exports (X - M)

Export revenues minus import expenditure

Exports

Goods and services produced in one country and purchased by consumers in another country

Imports

The value of goods and services purchased domestically that are produced abroad.

Business confidence

A measure of the degree of optimism that businesses have about the economic future.

Consumer confidence

A measure of the degree of optimism that households have about their income and economic prospects.

Wealth

The total value of all assets owned by a person, firm, community, or country minus what is owed to banks or other financial institutions.

Household indebtedness

The money that households owe.

Households

Groups of individuals in the economy who share the same living accommodation, who pool their income and jointly decide the set of goods and services to consume.

Price expectations

The forecasts or views that consumers or firms hold about future price movements that play a role in determining demand.

Interest rate

The cost of borrowing money or the reward for saving money over a period of time expressed as a percentage.

Business tax

Tax levied on the income (profit) of a business or corporation.

Corporate indebtedness

The sum of what a corporation owes to banks or other holders of its debt.

Exchange rate

The value of one currency expressed in term of another currency; for example,€1 = US$1.5.

Short-run aggregate supply (SRAS)

The total quantity of real output (real GDP) offered at different possible price levels in the short run (when wages and other resource prices are constant).

Supply-side policies

Government policies designed to shift the long-run aggregate supply curve to the right, thus increasing potential output in the economy and achieving economic growth.

Costs

All the expenditure by a firm(s) to produce a certain good, service or output; is a determinant of SRAS.

Cost-push inflation

Inflation that is a result of increased production costs (typically because of rising money wages or rising commodity prices) and illustrated by a leftward shift of the SRAS curve.

Indirect taxes (macroeconomics)

Payments to the government based on the spending on goods and services, included in

or added to the selling price; is a determinant of SRAS