Aggregate Demand And Supply Flashcards
Long run aggregate supply
Shows total planned output when both prices and average wage rates can change. It is a measure of a country’s potential output and the concept is linked strongly to that of the production possibility frontier.
Short run aggregate supply
Shows total planned output when prices in the economy can change but the prices and productivity of all factor inputs, e.g. Wage rates and the state of technology, are assumed to be held constant
Movement along the AS curve
Changes in price levels
Shift of the aggregate supply curve both in the short run and long run
Changes in anything else
Aggregate supply diagram
When the economy is at full capacity,the AS line becomes vertical. At this point, total productive efficiency is achieved.
All resources are being used efficiently
PPF Aggregate supply diagram
The full capacity is demonstrated on a PPF as production on the curve. Output cannot be increased.
Short run
Only one factor can change
Long run
All factors can change
Economic Growth
In the short run, an increase in real GDP and in the long run, an increase in productive capacity, that is, the maximum output that the economy can produce
Unemployment
A situation where people are out of work but are able and willing to work
Inflation
A sustained rise in the price level, the percentage increase in the price level over a period of time
Balance of Payments
A record of money flows coming in and going out of the country
Income Distribution
The division of total income between different recipients
Economic stability
The avoidance of vatality in economic growth rates, inflation, employment and exchange rates, in order to reduce uncertainty and promote business and consumer confidence and investment
Nominal GDP
Output measured in current prices and so not adjusted for inflation
Real GDP
The country’s output measured in constant prices and so adjusted for inflation
Trend Growth
The expected increase in potential output over time. It is a measure of how the last economy can grow without generating inflation
Sustainable economic growth
Economic growth that can continue over time and does not endanger future generations ability to expand productive capacity
