Aggregate Supply and Demand

Flashcards covering key concepts related to aggregate supply and aggregate demand, including microeconomic comparisons and theories behind the aggregate demand curve.

Aggregate Demand

The total demand for all goods and services in an economy.

Aggregate Supply

The total supply of all goods and services in an economy.

Microeconomics Market Example

The market for a specific product, like candy bars

Real GDP

The total production of an economy in a given period of time, plotted on the horizontal axis of the aggregate demand curve.

Price Level

The general level of prices in the economy, plotted on the vertical axis of the aggregate demand curve.

Wealth Effect

A theory that explains the downward sloping aggregate demand curve; when prices decrease, people feel wealthier and demand more goods and services.

Savings and Interest Rate Effect

A theory that explains the downward sloping aggregate demand curve; when prices decrease, savings increase, leading to lower interest rates and stimulated investment.

Foreign Exchange Effect

A theory that explains the downward sloping aggregate demand curve; when domestic prices decrease, the currency weakens, leading to increased net exports.