Untitled Flashcards Set

Aggregate Demand Curve

Shows the total quantity of goods and services demanded in an economy at different price levels, summing all individual markets.

Multiplier Effect

The idea that an initial change in spending leads to a larger final change in national income.

Marginal Propensity to Consume (MPC)

The proportion of additional income that a consumer spends on goods and services.

Marginal Propensity to Save (MPS)

The proportion of additional income that a consumer saves rather than spends.

Short-Run Aggregate Supply (SRAS)

The aggregate supply in the short run, which is upward sloping due to rising production costs.

Long-Run Aggregate Supply (LRAS)

The aggregate supply in the long run, which is vertical and determined by the economy's resources and technology.

Negative Output Gap

Occurs when actual output is less than potential output, indicating underutilized resources and high unemployment.

Positive Output Gap

Occurs when actual output is greater than potential output, leading to inflationary pressures.

Stagflation

An economic condition characterized by high inflation and high unemployment simultaneously.

Demand-Pull Inflation

Occurs when aggregate demand increases, leading to higher prices and output.

Cost-Push Inflation

Occurs when a negative supply shock decreases the economy's ability to produce, leading to higher prices and lower output.

Discretionary Fiscal Policy

Deliberate government actions aimed at influencing the economy through changes in spending and taxation.

Non-Discretionary Fiscal Policy

Automatically adjusting policies that stabilize the economy without the need for active intervention, such as unemployment benefits.

Recessionary Gap

When actual output is less than potential output, resulting in high unemployment.

Inflationary Gap

When actual output is greater than potential output, leading to inflation.

Disposable Income

Income available to individuals after taxes and deductions, available for consumption or saving.

Autonomous Consumption

Level of consumption that occurs regardless of income, necessary for basic needs.

Negative Supply Shock

An event that significantly decreases the economy's ability to produce goods and services, usually leading to higher costs.

Positive Supply Shock

An event that increases the economy's ability to produce goods and services, often lowering production costs.