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Aggregate Demand (AD)

The total quantity of goods and services demanded in the economy at different price levels.

Long-Run Aggregate Supply (LRAS)

It is vertical because, in the long run, output is determined by resources, technology, and productivity—not price levels.

Real GDP (RGDP)

Represents the total quantity of goods and services produced in the economy.

Price Level (PL)

Represents the overall price level in the economy, measured by the CPI or GDP Deflator.

Shifters of the AD Curve

Factors that cause the AD curve to shift, including changes in consumer spending, investment spending, government spending, and net exports.

Sticky Wages

A concept explaining why wages and some costs do not adjust immediately to changes in the economy.

Multiplier Effect

The phenomenon where one dollar of spending creates more than one dollar of economic impact due to repeated spending.

Marginal Propensity to Consume (MPC)

How much of an extra dollar people spend instead of saving.

Positive Demand Shock

An increase in aggregate demand leading to higher output and low unemployment but potentially causing inflation.

Negative Demand Shock

A decrease in aggregate demand leading to lower output and higher unemployment.

Short-Run Aggregate Supply (SRAS)

Shows the relationship between price level and RGDP that producers are willing to supply.

Exchange Rate Effect

A higher price level makes domestic goods more expensive for foreigners, reducing exports.

Interest Rate Effect

Higher price levels increase demand for loans, driving interest rates up and reducing borrowing.

Real Wealth Effect

When prices rise, the real value of money and assets falls, making people feel poorer and spend less.

Inflationary Gap

Occurs when the economy is operating above full employment.

Recessionary Gap

Occurs when the economy is operating below full employment.

Supply Shock

An unexpected event that causes a sudden change in supply, affecting production costs.

Keynesian Economics

An economic theory emphasizing the role of government spending to stimulate demand and output.

Long-Run Equilibrium

The state where the economy is operating at full employment with stable prices and output.

Fiscal Policy

Government policy regarding taxation and spending to influence the economy.

Aggregate Supply (AS)

The total supply of goods and services that firms in an economy plan on selling during a specific time period.

Long-Run Aggregate Demand (LRAD)

A concept where the economy is viewed over a longer time horizon, considering full employment and long-term trends.

Economic Shock

An unexpected event that causes a significant change in the economy, impacting supply and demand.

Full Employment

A situation in which all available labor resources are being used in the most economically efficient way.

Cyclical Unemployment

Unemployment that results from economic recessions or downturns in the business cycle.

Structural Unemployment

Unemployment resulting from industrial reorganization, typically due to technological change.

Frictional Unemployment

Temporary unemployment during transitions between jobs, such as entering the workforce or changing careers.

Consumer Confidence

A measure of how optimistic or pessimistic consumers are regarding their expected financial situation.

Interest Rate

The amount charged by lenders to borrowers for the use of borrowed money, usually expressed as a percentage.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, indicating the purchasing power of currency.