Aggregate Demand And Supply Flashcards
What is aggregate demand?
Aggregate demand is the total demand in the economy.
What does the aggregate demand measure?
It measures the spending on goods and services by consumers, firms, the government and overseas consumers and firms
What causes the AD curve to slope down?
Higher prices leads to fall in the value of real incomes.
High inflation meaning high interest rates.
High inflation also means average price level are high.
What causes there to be a shift in theAD curve to the right?
Increase in government spending.
Lower interest rates, it is cheaper to borrow.
What is aggregate supply?
It shows the quantity of real GDP which is supplied at difffermt price levels in the economy
Why is the AS curve upward sloping?
Because at a higher price levels, producers are willing to supply more because they can earn more profits.
The SRAS curve shifts when there are changes in the conditions of supply.
What are these conditions?
The cost of employment might change.
The cost of other inputs.
Government intervention.
What does the long run aggregate supply show?
It shows the potential supply of an economy in the long run.
