Aggregate Demand and Supply Flashcards
What does the AD line show
the amount of spending at each price level (inflation rate)
what causes a MOVEMENT along AD curve and what causes SHIFT in AD curve
- change price level results in movement along AD curve
2. change in components (interest rates, tax levels, confidence) of AE results in shift of AD curve
what does the Agg supply curve show
the level of real domestic output that will be produced at each price level
what is LRAS curve
represents max level output at that point in time. overtime it shifts right as tech improves potential output levels
what is SRAS curve
shows how an increase in econ activity increases price level
what causes shifts in the SRAS curve
factors that affect supplt of resources: labour forces, fuel
SRAS: what are 1. negative and 2. positive supply shocks
- cause left/upward shift in SRAS
2. cause right/downward shift in SRAS
what shifts LRAS curve
anything that shifts SRAS curve (resources), dont shift LRAS curve
LRAS shifted by work force sizes
what changes both LRAS and SRAS
changes in quantities of factors of production (labour force and capital stock)
when is Short Run EQL achieved
where AD intersetcs SRAS = economy actual level of production
where is long run eql achieved
AD, SRAS, LRAS interesect = potential output
during covid where was the economys short run eql in relation to LRAS curve
growth was negative so GDP < potential = short run eql to the left of LRAS
draw ADAS model during a contraction
ye
how does economy correct itself during a contractionary gap
wage rises slow, decreasing inflation shifting SRAS right moving economy back towards LRAS potenial
AD rises with confidence or gov implement expansionary policies
draw ADAS model during a boom
ye
