Aggregate Demand and Aggregate Supply

These flashcards cover key concepts related to Aggregate Demand and Aggregate Supply based on the lecture notes.

What does the Aggregate Demand curve represent?

It shows various levels of output (real GDP) that consumers desire to buy at each price level.

What factors can cause a shift in Aggregate Demand?

Changes in consumer spending, real interest rates or expected returns, government spending, and factors such as national incomes abroad and exchange rates.

What effect does a decline in price levels have on interest rates?

It leads to lower interest rates that can increase levels of certain types of spending.

What is the formula for Aggregate Demand?

Aggregate Demand = C + I + G + NX or Aggregate Demand = Real GDP.

What are the time horizons affecting Aggregate Supply?

Immediate short run, short run, and long run.

What are the determinants of Aggregate Supply?

Input prices, population, technology, government laws, and natural disasters.

What happens to Aggregate Demand when government spending increases?

Aggregate demand increases as long as interest rates and tax rates do not change.

What is productivity in the context of Aggregate Supply?

Real output per unit of input; increases in productivity reduce costs while decreases increase costs.

What leads to demand-pull inflation?

An increase in Aggregate Demand that causes the price level to rise.

What are some reasons for downward inflexibility of prices during a recession?

Fear of price wars, menu costs, wage contracts, efficiency wages, and minimum wage laws.

What does a leftward shift in Aggregate Demand signal?

It can lead to a recession, especially if the price level is downwardly inflexible.

What causes cost-push inflation?

A decrease in Aggregate Supply.