Aggregate demand (AD) & aggregate supply (AS) (Chapter 14) Flashcards
1
Q
aggregate demand (AD)
A
- quantity of goods and services that economic agents want to buy at each price level
2
Q
interest rate effect
A
- a higher price level increases money demand and the interest rate, thereby reducing interest and cost
3
Q
wealth effect
A
- a higher price level makes consumers feel less wealthy, thereby encouraging PS and reducing C
4
Q
real exchange rate or foreign purchases effect
A
- a higher price level makes domestically produced items less attractive, reducing X and encouraging M.
5
Q
factors affecting components of aggregate demand (AD)
A
- consumption (C)
- investment (I)
- government spending (G)
- exports (X)
- imports (M)
6
Q
shifts in aggregate demand (AD)
A
- caused by anything that results in more/less spending at any price level
7
Q
aggregate supply (AS)
A
- quantity of goods and services that firms choose to produce and sell at each price level
8
Q
long run aggregate supply (LRAS) or classical aggregate supply
A
- in the long run, and economy’s production depends on its supplies of resources and available technology
9
Q
short run aggregate supply (SRAS)
A
- in the short run output produced and price level move in the same direction
10
Q
factor prices
A
- tend to be fixed in short run via contracts (i.e. wages)
11
Q
unit cost theory
A
- in order to increase production, firms may have to pay overtime or use less efficient factors
12
Q
sticky wage theory
A
- because nominal wages do not adjust immediately to the price level, high prices make production more profitable
13
Q
Keynesian aggregate supply
A
- in a depression, supply simply accommodates demand
14
Q
stagflation
A
- a period of falling output and prices
