Aggregate Supply and Demand Concepts

Flashcards covering key vocabulary and concepts related to aggregate supply and demand, including the distinctions between short-run and long-run supply.

Aggregate Supply (AS)

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

Long-Run Aggregate Supply (LRAS)

A vertical line representing the economy's output at full employment; it is not affected by the price level.

Short-Run Aggregate Supply (SRAS)

An upward sloping curve that represents the total production of goods and services in the short term as prices increase.

Factors that shift LRAS

Changes in production factors such as technology, human capital, and availability of resources.

AD Formula

AD = C + I + G + (X-M), where C is consumption, I is investment, G is government spending, X is exports, and M is imports.

Shifters of SRAS

Factors that can cause the short-run aggregate supply curve to shift, including changes in production costs.

Price Level Effect on AD

When any variable in the AD equation changes, the aggregate demand curve shifts.

Determinants of SRAS

Includes changes in input prices, productivity changes, and technological advancements.

Human Capital Improvements

Enhancements in workforce skills and education that can shift the aggregate supply curve.

Tax and Regulation Changes

Adjustments in tax rates and business regulations that can affect production costs and shift SRAS.

Aggregate Supply (AS)

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

Long-Run Aggregate Supply (LRAS)

A vertical line representing the economy's output at full employment; it is not affected by the price level.

Short-Run Aggregate Supply (SRAS)

An upward sloping curve that represents the total production of goods and services in the short term as prices increase.

Factors that shift LRAS

Changes in production factors such as technology, human capital, and availability of resources.

AD Formula

AD = C + I + G + (X-M), where C is consumption, I is investment, G is government spending, X is exports, and M is imports.

Shifters of SRAS

Factors that can cause the short-run aggregate supply curve to shift, including changes in production costs.

Price Level Effect on AD

When any variable in the AD equation changes, the aggregate demand curve shifts.

Determinants of SRAS

Includes changes in input prices, productivity changes, and technological advancements.

Human Capital Improvements

Enhancements in workforce skills and education that can shift the aggregate supply curve.

Tax and Regulation Changes

Adjustments in tax rates and business regulations that can affect production costs and shift SRAS.

Impact of increased Aggregate Demand (AD)

Leads to a higher equilibrium price level and increased real GDP in the short run.

Impact of decreased Aggregate Demand (AD)

Leads to a lower equilibrium price level and decreased real GDP in the short run.

Impact of increased Short-Run Aggregate Supply (SRAS)

Leads to a lower equilibrium price level and increased real GDP.

Impact of decreased Short-Run Aggregate Supply (SRAS)

Leads to a higher equilibrium price level and decreased real GDP.

Impact of increased Long-Run Aggregate Supply (LRAS)

Increases the economy's potential output or full-employment GDP.

Impact of decreased Long-Run Aggregate Supply (LRAS)

Decreases the economy's potential output or full-employment GDP.