ECON 102 - Chapter 5

A collection of flashcards covering key vocabulary and concepts from the Principles of Macroeconomics lecture, focusing on aggregate demand, supply, economic growth, and different economic theories.

Potential GDP

The total amount that an economy is capable of producing when all of its resources are fully utilized, not dependent on the price level.

Aggregate Demand (AD)

The total quantity of final goods and services demanded at various price levels by consumers, businesses, government, and foreign buyers.

Aggregate Supply (AS)

The total quantity of goods and services produced by all sellers at various price levels, which increases as the price level rises.

Macroeconomic Equilibrium

A situation in which aggregate demand equals aggregate supply.

Recessionary Gap

Occurs when equilibrium output is below long run aggregate supply (LAS), leading to unemployment.

Inflationary Gap

Occurs when equilibrium output is above long run aggregate supply (LAS), where the economy is tempted to produce beyond its capacity.

Multiplier Effect

The additional economic activity generated when spending changes, which causes total income to change more.

Neoclassical Economics

An economic theory suggesting that the market is competitive and efficient, with prices and wages adjusting quickly to changes.

Keynesian Economics

An economic theory stating that the market is not always efficient, and government intervention may be necessary to maintain full employment.

Factors Affecting Aggregate Demand

Includes individual consumer wealth, interest rates, government spending, taxes, and changes in consumer expectations.

Factors Affecting Aggregate Supply

Includes changes in human capital, physical capital, technological advancements, and natural resources.