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financial macroeconomics > aggregate demand and aggregate supply model > Flashcards

aggregate demand and aggregate supply model Flashcards

1
Q

aggregate demand and supply model

A

explains short-run fluctuations in real gdp and the price level

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2
Q

aggregate demand curve (AD)

A

the inverse relationship between the price level and the quantity of real GDP demanded

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3
Q

short-run aggregate supply (SRAS)

A

positive relationship in the short run between the price level and the quantity of real gdp supplied

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4
Q

aggregate demand: the wealth effects

A

how a change in price level affects consumption
higher price level leads to lower consumption

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5
Q

aggregate demand: the interest-rate effects

A

how a change in price level affects investment
higher price level leads to lower investment

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6
Q

aggregate demand: the international-trade effect

A

how change in price level affects net exports
higher price level leads to lower net exports (more imports)

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7
Q

movement along AD

A

change in price level

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8
Q

shifts in AD (5)

A

monetary policy (interest rates)
fiscal policy
household and firm expectations
foreign income
exchange rate

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9
Q

recessions and components of AD

A

consumption: falls and then stays steady
investment: continues to fall
net exports: increased/ less negative

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10
Q

aggregate supply

A

sum of all goods and services supplied in an economy

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11
Q

long-run aggregate supply (LRAS)

A

relationship between the price level and the quantity of real gdp supplied
vertical line

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12
Q

why is SRAS upward-sloping and not vertical (2)

A

fail to predict and slow to adjust

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13
Q

slow to adjust (3)

A

sticky prices and wages
slow to adjust wages
menu costs

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14
Q

movement along SRAS

A

change in price level not cause by factors that would affect SRAs

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15
Q

shifts in SRAS

A

availability of the factors of production
improvements in tech
expectations
supply shock

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16
Q

long-run economic equilibrium

A

occurs when Ad and SRAS curves intersect at the LRAS level

17
Q

supply shock

A

negative: sudden decrease in availability
positive: sudden increase in availability
affects SRAS

18
Q

stagflation

A

inflation and falling real gdp

19
Q

dynamic aggregate demand and supply model

A

the economy rights itself

20
Q

demand shock

A

rise in AD -> increase in PL and GDP
decrease in AD -> decrease in PL and GDP (gdp < full employment gdp)

21
Q

supply shock

A

rise in SRAS -> decrease in PL and increase in GDP
decrease in SRAS -> increase in PL and decrease in GDP (stagflation)

22
Q

main factors causing the recession of 2008

A

end of housing bubble
financial crisis
rapid increase in oil prices during 2008

financial macroeconomics (6 decks)

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