3.2 Aggregate Demand and Aggregate Supply

Question 1

Aggregate demand

Answer 1

The total value of demand for all goods and services by all stakeholders at different price levels, over a time period.

Question 2

Aggregate supply

Answer 2

The total amount of goods and services produced in an economy at different price levels, over a time period.

Question 3

Inflationary gap

Answer 3

The situation where total spending (aggregate demand) is greater than the full employment level of output, thus causing inflation.

Question 4

Recessionary gap

Answer 4

The situation where total spending (aggregate demand) is less than the full employment level of output, thus causing unemployment.

Question 5

Full employment level of output

Answer 5

The level of output that is produced by the economy when there is only natural unemployment.

Question 6

Natural rate of unemployment

Answer 6

The level of employment at when the economy is operating at full employment, consisting of seasonal, frictional, and structural unemployment.