Aggregate Demand and Aggregate Supply in Macroeconomics

These flashcards cover key concepts related to aggregate demand and supply, economic fluctuations, and their impacts.

What is a recession?

A period of falling incomes and rising unemployment.

What is a depression?

A severe recession.

What variables are largely studied in the context of aggregate demand and supply?

GDP, unemployment, interest rates, exchange rates, and prices.

What characterizes economic fluctuations?

They are irregular and unpredictable.

What happens to output when unemployment rises?

Output typically falls.

What is the aggregate-demand curve?

It shows the quantity of goods and services demanded in the economy at any given price level.

Why does the aggregate-demand curve slope downward?

Due to the wealth effect, interest-rate effect, and real exchange-rate effect.

What does the aggregate-supply curve indicate?

The total quantity of goods and services that firms produce and sell at any given price level.

What shifts the long-run aggregate-supply curve?

Changes in labor, capital, natural resources, and technological knowledge.

What is stagflation?

A period of falling output and rising prices.

What are the three important lessons regarding shifts in aggregate demand?

1. They cause fluctuations in output in the short run. 2. They affect the overall price level in the long run. 3. Policymakers can mitigate economic fluctuations.

What causes the aggregate-supply curve to slope upward in the short run?

The presence of sticky wages, sticky prices, and misperceptions.