Aggregate Demand and Supply (AD/AS Model)

Flashcards for understanding the concepts of Aggregate Demand and Aggregate Supply, their components, and effects on the economy.

Aggregate Demand

The total quantity of all goods and services all groups in an economy are willing and able to purchase from all producers.

Aggregate Supply

The total supply of all goods and services in the economy.

C

Consumer Spending - Total spending by households on NZ made goods.

I

Investment Spending - Total spending by producers on new capital goods.

G

Government Spending - Total spending by government on goods and services.

X

Export Receipts - Money received by NZ producers for products sold overseas.

M

Import Payments - Money paid to overseas firms for their products.

Net Exports

Calculated as Export Receipts minus Import Payments.

AD = C + I + G + (X - M)

The equation representing Aggregate Demand.

Shift Factors of Aggregate Demand

Factors that cause the Aggregate Demand curve to shift to the left or right.

Factors causing Increase in Aggregate Demand

Increase in C, I, G, or X or decrease in M.

Factors causing Decrease in Aggregate Demand

Decrease in C, I, G, or X or increase in M.

Real GDP

The total value of all goods and services produced in an economy, adjusted for inflation.

Widespread Changes

Impact that affects large sectors of the economy, influencing Aggregate Supply.

Cost of Production (CoP)

The total costs incurred to produce goods and services, affecting Aggregate Supply.

Inflation

The rate at which the general level of prices for goods and services rises.