Lecture 6- Aggregate Demand (AD)- Aggregate. Supply (AS) Model

Aggregate Demand

What does AD stand for?

Aggregate Demand

Shows us the relationship between average price level and total quantity of output that all buyers collectively plan to purchase

Aggregate Supply

What does AS stand for?

Aggregate Supply

The production plan of all suppliers throughout the economy.

The quality of output produced across the economy as a whole= real gdp.

What does the AD/AS model show?

negative slope

AD curve has a _____________, which leads to higher average prices and lower quantity.

positive slope

AS curve has a __________, which means suppliers produce a larger quantity when average price level is higher.

GDP deflator

The price of that output is mesaured by _______

Aggregate Supply Curve

The relationship between average price level and quantity of output produced.

Macroeconomic Equilibrium

Describes or stable situation, with no tendency to change, because opposing forces are in balance.

Aggregate Expenditure

What does AE stand for?

Aggregate Expenditure

Refers to the total amount of goods and services people want to buy across the whole economy.

Interest Rate

(1) An option as to why AD curve slopes downward…

higher inflation rate

A higher price level corresponds to a ________________.

Federal reserve

When inflation rate is higher, ______________ sets the real interest rates higher such as consumption falls.

inflation

If price level goes up this mean ______ increases

real interest rates

If inflation increases, that means ____________ also increase.

Wealth Effect

(2) An option as to why AD curve slopes downward…

household purchasing

When inflation rate is high, _______________ goes down.

International Trade Effect (NX)

(3) An option as to why AD curve slopes downward…

buy foregin goods

If American made goods become more expensive, consumers are most likely to…

net exports

Higher price in a home country levels decreases….

consumption increases

What is the result if the stock market booms?

production of goods increases

What is the result if there is an investment in tools, equipment, software, etc?

goverment spending increases and ad moves to the right.

What is the result if federal, state or local spending increases?

Short-Run; Long-Run

What are the two different AS curves?

To represent the total output on the economy

Why is LRAS Vertical?

inclusive institutions

Why the LRAS curve might shift?