3.2 Aggregate demand and aggregate supply

Question 1

Aggregate Demand

Answer 1

Total quantity of aggregate output/real GDP that all buyers in an economy want to buy at different possible price levels, ceteris paribus

Question 2

Average price level (APL)

Answer 2

The general price level of goods and services in the economy

Question 3

Real GDP

Answer 3

The total amount of output/goods & services produced in the economy in a given time

Question 4

Aggregate Supply

Answer 4

Total quantity of aggregate output/real GDP produced in an economy at different possible price levels, ceteris paribus

Question 5

short-run (macro)

Answer 5

The time period where the prices of factors of production remain relatively constant

Question 6

Short run aggregate supply

Answer 6

Total quantity of aggregate output/real GDP produced in an economy at different possible price levels when the prices of factors of production remain relatively constant

Question 7

short-run equilibrium

Answer 7

Where AD = SRAS, where a constant level of GPL is achieved and a constant level of output is produced in the economy

Question 8

maximum productive capacity

Answer 8

The potential output of the economy; the maximum output that can be produced when all resources are utilized

Question 9

Full employment level of output

Answer 9

The level of unemployment that occurs (also known as the natural rate of unemployment) when the economy is producing at its maximum productive capacity

Question 10

long run

Answer 10

The time period where the price of factors of production are fully flexible. This is a key assumption of the Monetarist/Neoclassical point of view.

Question 11

long run aggregate supply

Answer 11

The LRAS represents the maximum productive capacity of the economy, the total level of output that can be produced in an economy in the long run when factor prices are fully flexible

Question 12

keynesian model

Answer 12

Assumes that wages and prices are sticky even in the long run

Question 13

marginal propensity to consume (MPC)

Answer 13

The fraction of income spent on consumption for every extra dollar of income earned

Question 14

marginal propensity to withdraw (MPW)

Answer 14

The fraction of ‘leakages’ for every extra dollar of income earned

Question 15

marginal propensity to save (MPS)

Answer 15

The fraction of savings for every extra dollar of income earned

Question 16

marginal propensity to tax (MPT)

Answer 16

The fraction of taxation paid for every extra dollar of income earned

Question 17

marginal propensity to import (MPM)

Answer 17

The fraction spent on imports for every extra dollar of income earned