Keynesian Aggregate Supply/Aggregate Demand (AS/AD)

Keynesian Model

Macroeconomic theory developed by John Maynard Keynes that emphasizes the role of government intervention to influence economic activity and aggregate demand.

Classical Model

An economic theory that suggests free markets regulate themselves and aggregate supply and demand are always in equilibrium.

Aggregate Supply

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

Short Run vs Long Run

In the Keynesian perspective, the economy does not adjust quickly to long-run equilibrium due to wage and price stickiness.

Full Employment Level of Output

The maximum sustainable output an economy can produce when all resources are fully utilized.

Sticky Wages

The tendency for wages to resist downward adjustments even in the face of unemployment or economic downturns.

Recessionary Gap

A situation in which the actual output of an economy is less than its potential output, leading to high unemployment.

Active Demand-Side Management

Economic policies aimed at influencing aggregate demand through government spending and taxation.

Fiscal Policy

Government policy concerning taxation and spending intended to influence economic conditions.

Deflationary Gap

A situation where the economy is operating below its full employment level, leading to a decline in prices.