Aggregate Demand and Supply Concepts

These flashcards cover vocabulary and key definitions related to aggregate demand and supply, focusing on concepts crucial for understanding economics.

What is aggregate demand?

Aggregate demand is the total demand for goods and services in a nation at a given price level.

What factor would increase aggregate demand?

An increase in government spending.

What causes a movement along the aggregate demand curve?

A change in the price level.

What is aggregate supply defined as?

The total output of goods and services supplied in the economy at a given price level.

What would cause the aggregate supply curve to shift left?

An increase in the cost of raw materials.

What would cause the aggregate supply curve to shift to the right?

A decrease in taxes on businesses.

What happens to aggregate demand if interest rates fall?

It increases because business investment rises.

What shifts the long-run aggregate supply curve (LRAS) to the right?

An increase in productivity due to technological advances.

What happens to aggregate supply if there is a natural disaster?

It would shift to the left.

How is aggregate equilibrium determined in the short run?

By the intersection of the AD and SRAS curves.

What occurs when aggregate demand exceeds aggregate supply?

The economy is in an inflationary gap.

What occurs when aggregate supply exceeds aggregate demand?

The economy faces a recessionary gap.

What results from an increase in both aggregate demand and aggregate supply?

Higher prices and higher output.

What happens if aggregate demand shifts to the right and aggregate supply remains unchanged?

Inflation.

What is the result if both aggregate demand and aggregate supply decrease?

Lower prices and lower output.

What leads to long-run equilibrium in the aggregate economy?

Aggregate demand equals long-run aggregate supply.

When does an inflationary gap occur?

When the economy's actual output exceeds potential output.

What happens to wages during an inflationary gap?

Wages increase due to higher demand for labor.

How does output compare to the economy's potential GDP during an inflationary gap?

Output is above potential GDP.

What occurs during a recessionary gap?

The economy's actual output is below potential output.

What is a possible effect of a recessionary gap?

Lower price levels and higher unemployment.

How does output compare to potential GDP during a recessionary gap?

Output is below potential GDP.