Aggregate Demand and Supply Review

A collection of vocabulary flashcards based on key terms and concepts related to Aggregate Demand and Aggregate Supply.

Aggregate Demand (AD)

The total quantity of goods and services demanded across all levels of the economy at a given price level.

Aggregate Supply (AS)

The total quantity of goods and services that producers in an economy are willing and able to supply at a given overall price level.

Wealth Effect

As prices rise, the purchasing power of wealth falls, leading to a reduction in consumption.

Export Price Effect

As domestic prices rise, exports become more expensive for foreign buyers, leading to a decrease in export demand.

Interest Rate Effect

As prices rise, the demand for money increases, leading to higher interest rates, which discourages investment.

Determinants of Aggregate Demand

Factors that can cause the entire AD curve to shift. These include changes in consumer confidence, investment spending, government policies, and net exports.

Short-Run Aggregate Supply (SRAS)

The relationship between the quantity of goods and services that firms wish to produce and the price level in the short run.

Sticky Wages

In the short run, wages do not adjust immediately to changes in economic conditions, affecting labor supply and production.

Long-Run Aggregate Supply (LRAS)

In the long-run, the aggregate supply curve is vertical, indicating that the economy is at full employment regardless of price level.

Stagflation

An economic condition characterized by slow economic growth and relatively high unemployment (economic stagnation) accompanied by inflation.

Demand-Pull Inflation

A situation where increased demand for goods and services leads to higher prices.

Cost-Push Inflation

A situation where the overall prices increase due to rising costs of wages and raw materials.

Economic Equilibrium

Occurs when aggregate demand equals aggregate supply, and there is no inherent tendency for change in the economy.

Monetary Policy

Actions undertaken by a nation's central bank to control money supply to achieve macroeconomic objectives.

Fiscal Policy

Government policy regarding taxation and spending to influence the economy.