1.4-The interaction of Ad and AS Flashcards
What does aggregate demand (AD) represent in an economy?
Aggregate demand represents the total quantity of goods and services demanded across all levels of the economy at a given overall price level and in a given time period.
What are the components of aggregate demand?
The components of aggregate demand are consumption (C), investment (I), government spending (G), and net exports (NX).
True or False: An increase in consumer confidence typically leads to an increase in aggregate demand.
True
Fill in the blank: The formula for aggregate demand is AD = _____ + I + G + (X - M).
C
What does the aggregate supply (AS) curve show?
The aggregate supply curve shows the total quantity of goods and services that producers are willing and able to supply at a given price level in a given time period.
What are the two types of aggregate supply?
The two types of aggregate supply are short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS).
True or False: The long-run aggregate supply curve is vertical.
True
What happens to aggregate demand when the central bank lowers interest rates?
When the central bank lowers interest rates, aggregate demand typically increases due to cheaper borrowing costs.
What is the relationship between aggregate demand and inflation?
An increase in aggregate demand can lead to inflation if the economy is at or near full capacity.
Fill in the blank: An outward shift of the aggregate supply curve indicates an increase in _____ capacity.
productive
What factors can lead to a rightward shift in the aggregate supply curve?
Factors that can lead to a rightward shift in the aggregate supply curve include technological advancements, increases in the labor force, and improvements in productivity.
Multiple Choice: Which of the following would NOT increase aggregate demand? A) Decrease in taxes B) Increase in interest rates C) Increase in government spending D) Increase in exports
B) Increase in interest rates
What does a leftward shift in the aggregate supply curve indicate?
A leftward shift in the aggregate supply curve indicates a decrease in the total output of goods and services at every price level, often due to increased production costs.
True or False: Aggregate demand can be influenced by fiscal policy.
True
What is the impact of a decrease in aggregate supply on the economy?
A decrease in aggregate supply can lead to higher prices (inflation) and lower output (recession).
Fill in the blank: The intersection of the aggregate demand and aggregate supply curves determines the _____ level of output in the economy.
equilibrium
What role does consumer spending play in aggregate demand?
Consumer spending is the largest component of aggregate demand and directly influences overall economic activity.
Multiple Choice: Which of the following is NOT a component of aggregate demand? A) Consumption B) Investment C) Savings D) Net Exports
C) Savings
What is the effect of supply shocks on aggregate supply?
Supply shocks can cause the aggregate supply curve to shift, leading to changes in price levels and output.
True or False: Government policies can directly affect aggregate demand.
True
What is the significance of the long-run aggregate supply curve?
The long-run aggregate supply curve reflects the economy’s maximum sustainable output when all resources are fully utilized.
Fill in the blank: An increase in wages can lead to a _____ shift in the short-run aggregate supply curve.
leftward
What is the impact of higher taxes on aggregate demand?
Higher taxes typically reduce disposable income, leading to a decrease in aggregate demand.
Multiple Choice: Which scenario would likely cause a rightward shift in the aggregate demand curve? A) Increased business investment B) Increased interest rates C) Decreased consumer confidence D) Increased taxation
A) Increased business investment
