Chapter 9 - Aggregate Demand and Aggregate Supply

full employment

When the economy is producing below ________ or potential output, the process works in reverse.

international trade effect

The ________: In an open economy, a lower price level will mean that domestic goods become cheaper relative to foreign goods, so the demand for domestic goods will increase.

level of income

The relationship between the ________ and consumer spending is known as the consumption function.

Adjustments

________ in wages and prices take the economy from short- run equilibrium to long- run equilibrium.

part of consumption

The by represents the ________ that is dependent on income.

wealth

The ________ effect: the increase in spending that occurs because the real value of money increases when the price level falls.

price system

Normally, the ________ efficiently coordinates what goes on in an economy.

Input prices

________ (wages and materials): Increase in ________ will increase firms costs.

marginal propensity

The ________ to save (MPS) is defined as the ratio of additional savings to additional income.

MPC

It is the product of a fraction, b, called the marginal propensity to consume (________), and the level of income, or y, in the economy.

physical capital

In the long run, the output is determined solely by the supply of human and ________ and the supply of labor, not the price level.

Long run

________ aggregate supply curve: A vertical aggregate supply curve that reflects the idea that in the ________, the output is determined solely by the factors of production and technology.

price level

As the ________ or average level of prices in the economy changes, so does the purchasing power of your money.

Ca

________ is a constant and is independent of income which is called autonomous consumption spending.

Short Run

Stagflation: A decrease in real output with increasing prices 9.4 From the ________ to the Long Run.

Supply shocks

________ are external events that shift the aggregate supply curve.

aggregate demand curve

The ________ (AD) shows the relationship between the level of prices and the quantity of real GDP demanded.

price system

The ________ provides signals to firms as to who buys what, how much to produce, what resources to use, and from whom to buy.

MPC

The ________ tells us how consumer spending will increase for every dollar that income increases.

price system

On a day- to- day basis, the ________ works silently in the background, matching the desires of consumers with the output from producers.

MPC

________= additional consumption /additional income.