Aggregate Supply-Aggregate Demand

Flashcards covering key concepts and factors influencing Aggregate Supply and Aggregate Demand.

Long-Run Aggregate Supply (LRAS)

The long-run full employment level of real GDP.

Short-Run Aggregate Supply (SRAS)

Reflects the current real GDP; influenced by the expected price level (Pe).

Aggregate Demand (AD)

Determined by consumption (C), investment (I), government expenditure (G), and net exports (NX).

Expected Price Level (Pe)

Reflects what workers and firms expect prices to be in the near future, influencing wage and price demands.

Permanent Decrease in Consumer Optimism

• Shifts the AD curve to the left, leading to lower price levels and lower output in the short run.

• Short run: decrease in price and output

• In the long run, prices adjust, and output returns to full employment.

• Long run: prices adjust and output returns to full employment

Permanent increase in investor optimism

• Shifts the AD curve to the right, leading to higher price levels and higher output in the short run.

• Short run: increase in price and output

• In the long run, prices adjust, and output returns to full employment.

• Long run: prices adjust and output returns to full employment

Temporary Increase in Consumer Optimism

• Shifts AD right temporarily, leading to a short-run increase in price and output.

• Short run: increase in price and output

• In the long run, AD returns to its original position.

• Long run: AD returns to the original position

Tempprary Decrease in Investor Optimism

• Shifts AD left temporarily, leading to a short-run decrease in price and output.

• Short run: decrease in price and output

• In the long run, AD returns to its original position.

• Long run: AD returns to its original position

Permanent Increase in Exports

• Shifts the AD curve to the right, leading to higher price levels and higher output in the short run

• Short run: increase in price and output

• In the long run, prices adjust, and output returns to full employment.

• Long run: prices adjust and output returns to full employment

Permanent Decrease in Exports

• Shifts the AD curve to the left, leading to lower price levels and lower output in the short run.

• Short run: decrease in price and output

• In the long run, prices adjust, and output returns to full employment.

• Long run: prices adjust and output returns to full employment

Permanent Increase in Imports

• AD shifts left, prices decrease, output decreases, and unemployment increases in the short run;

• Short run: prices decrease, output decreases, and unemployment increases

• In the long run, prices adjust, and output returns to full employment.

• Long run: prices adjust and output returns to full employment.

Temporary Increase in Imports

• AD shifts left temporarily, short-run decrease in price and output

• Short run: decrease in price and output

• In the long run, AD returns to original position with price and output returning to initial state.

• Long run: AD returns to original position