Aggregate Demand and Supply Dynamics

This set of flashcards covers essential vocabulary related to aggregate demand and supply, economic gaps, government policies, and the mechanics of how economies adjust to fluctuations.

Aggregate Demand

Total demand for goods and services within an economy at a given overall price level and in a given time period.

Short-run Aggregate Supply (SRAS)

The total production of goods and services in an economy at varying price levels in the short run.

Long-run Aggregate Supply (LRAS)

The total production of goods and services that an economy can achieve when both prices and wages have adjusted.

Recessionary Gap

Occurs when the actual GDP is lower than the potential GDP, typically resulting in rising unemployment.

Inflationary Gap

Occurs when the actual GDP exceeds the potential GDP, leading to rising inflation.

Stagflationary Gap

A combination of stagnation and inflation characterized by high unemployment and inflation rates.

Automatic Stabilizers

Government policies that automatically help stabilize an economy without explicit intervention by policymakers.

Discretionary Policy

Policy actions that are initiated by government to influence economic conditions through changes in taxation and spending.

Factors of Production

The resources used to produce goods and services: land, labor, capital, and human capital.

Output Gap

The difference between actual real GDP and potential real GDP.

Expansionary Fiscal Policy

Government policy that aims to increase economic growth through increased government spending or tax cuts.

Contractionary Fiscal Policy

Government policy aimed at reducing the rate of economic growth, typically through decreasing government spending or increasing taxes.

Sticky Wages

Wages that are slow to adjust to changing economic conditions, leading to unemployment in the short run.

Nominal Wages

The amount of money received by workers, not adjusted for inflation.