Aggregate Demand and Economic Concepts

Flashcards covering the key terms and concepts from the lecture on Aggregate Demand and related economic principles.

Aggregate Demand (AD)

The total demand for all goods and services in an economy at a given overall price level and in a given period.

Consumption Function

A mathematical relationship between total consumption and gross national income, showing how changes in income affect consumption.

Investment Spending

Expenditures on new plants, equipment, and structures, plus changes in inventories.

Macroeconomic Equilibrium

The state where aggregate demand (AD) equals aggregate supply (AS), determining the overall price level and output of the economy.

Recessionary GDP Gap

The amount by which equilibrium GDP falls short of full-employment GDP.

Inflationary GDP Gap

The amount by which equilibrium GDP exceeds full-employment GDP, indicating overheating of the economy.

Autonomous Consumption

Consumer spending that occurs even if current income is zero, influenced by expectations of future income.

Marginal Propensity to Consume (MPC)

The fraction of any additional income that is spent on consumption, representing consumer spending habits.

Marginal Propensity to Save (MPS)

The fraction of any additional income that is saved, which along with MPC equals 1.

Net Exports (X - M)

The difference between the value of a country's exports and the value of its imports.

AD Shift Factors

Variables such as consumer confidence, income, wealth, and credit conditions that cause aggregate demand to shift.

Keynesian Demand-Side Policy

Economic policies based on the theory of John Maynard Keynes, advocating government intervention to manage demand and stabilize the economy.