Aggregate Demand

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy.

Real GDP

Total output of the economy, adjusted for inflation.

Aggregate Demand (AD)

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

Downward Sloping Curve

A characteristic of the AD curve, indicating that as the price level increases, real GDP decreases.

Interest Rate Effect

When prices rise, people demand more money for transactions, leading to higher interest rates and reduced investment and consumption.

Long-Run Aggregate Supply (LRAS)

A vertical curve indicating that real GDP is determined by fundamental factors of production and is not influenced by the price level in the long run.

Price and Wage Stickiness

The inability of prices and wages to adjust immediately to changes in the economic conditions.

Short-Run Aggregate Supply (SRAS)

The curve that represents the relationship between the price level and the quantity of goods and services supplied in the short run.

Input Prices

Costs associated with factors of production that impact the supply curve.

Shifts in Aggregate Demand

Changes in consumer spending, investment spending, or net export spending that can lead to a rightward or leftward shift in the AD curve.

Real Shocks

Fundamental changes in the economy that can shift the LRAS, such as technological improvements or disasters.

Demand-Pull Inflation

Inflation that occurs when aggregate demand increases due to various factors leading to a higher price level.

Menu Costs

The costs associated with changing prices, which can lead to price stickiness.

Natural Unemployment

Unemployment that exists when the economy is at full employment, accounting for frictional and structural unemployment.

Consumer Expectations

What consumers anticipate about future economic conditions, which can influence their current spending.

Adjustments to Equilibrium

The process by which the economy returns to a balance point after experiencing shocks or shifts in supply and demand.