Aggregate Demand and Aggregate Supply Concepts

These flashcards cover key concepts related to aggregate demand and supply in macroeconomics, providing a question-and-answer format for effective review.

What does aggregate demand represent in an economy?

Aggregate demand represents the total quantity of real output that consumers, firms, government, and foreigners want to buy at each possible price level.

What are the four components of aggregate demand?

The four components of aggregate demand are consumption (C), investment (I), government spending (G), and net exports (X - M).

What does a rightward shift of the aggregate demand curve indicate?

A rightward shift indicates an increase in aggregate demand, meaning that a larger amount of real GDP is demanded at any given price level.

What factors can cause changes in consumer spending within aggregate demand?

Factors include consumer confidence, interest rates, wealth, income taxes, and expectations of future price levels.

What is the relationship between the price level and aggregate output demanded according to the aggregate demand curve?

The aggregate demand curve is downward-sloping, indicating a negative relationship between the price level and the quantity of aggregate output demanded.

What is the definition of short-run aggregate supply (SRAS)?

Short-run aggregate supply (SRAS) refers to the total quantity of goods and services produced in an economy at different price levels when resource prices are roughly fixed.

What can cause shifts in the short-run aggregate supply curve?

Shifts in the SRAS curve can be caused by changes in wages, costs of non-labour resources, indirect taxes, subsidies, and supply shocks.

How does the Keynesian aggregate supply (AS) curve differ from the monetarist model?

The Keynesian AS curve may have a horizontal section where output increases without changing the price level, while the monetarist model assumes prices and wages are always flexible.

In which economic state do inflationary gaps occur?

Inflationary gaps occur when real GDP exceeds potential GDP, leading to unemployment lower than the natural rate.

What is the significance of the natural rate of unemployment in the context of aggregate supply?

The natural rate of unemployment represents the level of unemployment when the economy is producing its potential output, where all resources are utilized efficiently.