BOLDED TERMS ONLY - Unit 3 - National Income & Price Determination - AP Macroeconomics

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<p>AD-AS Model</p>

AD-AS Model

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20 Terms

1
<p>AD-AS Model</p>

AD-AS Model

Used to analyze how changes in aggregate demand and aggregate supply affect overall price levels and real GDP.

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2

Aggregate Demand (AD)

The total amount of goods and services demanded by households, businesses, government, and foreign buyers within an economy.

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3

Disposable Income (YD)

The income a consumer has left over to spend or save once they have paid out their net taxes.

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4

Marginal Propensity to Consume (MPC)

The change in consumption caused by a change in disposable income (YD).

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5

Marginal Propensity to Save (MPS)

The change in saving caused by a change in disposable income (YD)

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6

Expenditure Multiplier

Effect of autonomous spending changes.

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7

Tax Multiplier

How much people will not spend if taxes increase.

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8

Short-Run Aggregate Supply (SRAS)

Represents the total amount of goods and services that firms are willing to produce and sell at different price levels in the short run.

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9

Long-Run Aggregate Supply (LRAS)

The number of goods and services that an economy is capable of producing with the full employment of resources

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10

Full-Employment level of Output

The level of real GDP where all available resources in an economy are being used efficiently, resulting in zero cyclical unemployment.

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11

Short-run Equilibrium price level

Where demand equals supply, leading to stable production levels.

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12

Short-run Equilibrium output level

The economic output when AD is equal to AS in the short-run.

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13

Recessionary Gap

High unemployment & low prices

Actual Output < Potential Output

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14

Inflationary Gap

Low unemployment & high prices

Actual Output > Potential Output

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15

Demand-Pull Inflation

More consumption leads to an increase in price level and real GDP.

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16

Cost-Push Inflation

Happens when production is decreased (or input costs increased, thus decreasing the amount of production).

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17

Fiscal Policy

The government’s use of taxing and spending.

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18

Expansionary Fiscal Policy

The government aims at raising AD, therefore government spending increases AND OR taxes decrease.

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19

Contractionary Fiscal Policy

The government aims at lowering AD, therefore government spending decreases AND OR taxes increase.

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20

Long-Run macroeconomics equilibrium

Maximum sustainable output with stable prices & employment

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