Aggregate Supply and Aggregate Demand

Vocabulary flashcards reviewing Long-Run Aggregate Supply (LAS), Short-Run Aggregate Supply (SAS), Aggregate Demand (AD), their determinants, and economic gaps.

LAS (Long-Run Aggregate Supply)

A vertical line at the economy's full-employment output level.

Reason LAS is Vertical

The price level does not affect the economy's real output capacity.

Shifters of LAS

Anything that changes the economy's production capacity, including the quantity/quality of resources and technical progress.

SAS (Short-Run Aggregate Supply)

An upward-sloping curve showing a direct relationship between the price level and the total quantity of real output supplied.

Reason SAS Slopes Upward

Input prices (like nominal wages) are "sticky" or slow to adjust in the short run.

Shifters of SAS

Changes in unit production costs, such as productivity, input/resource prices, and the legal institutional environment.

Reasons for Downward-Sloping AD Curve

The Real-Balances Effect, Interest Rate Effect, and The Foreign Purchases Effect.

Shifters of the Aggregate Demand Curve

Consumer spending, investment spending, government spending, and net export spending.

Inflationary Gap

A condition where real GDP is greater than full-employment GDP because aggregate demand outpaces short-run aggregate supply.

Recessionary Gap

A condition where real GDP is less than full-employment GDP, prompting the SAS curve to respond through the economy's self-correcting mechanism.