Aggregate Supply and Aggregate Demand Flashcards
Aggregate Supply
The sum of all the supply in the economy.
Aggregate Demand
The total demand for final goods and services in an economy at a given time.
Changes in Aggregate Supply
Determinants of aggregate supply
Shift factors
Collectively position the AS curve
Changes raise or lower per-unit production costs.
Changes in Population
birth, death, immigration, emigration.
Changes in Technology
Productivity improvements from technological progress.
Circular Flow Model
A diagram that traces the flow of resources, products, income, and revenue among economic decision makers.
Equilibrium in Macro Markets
In economics, economic equilibrium is a situation in which economic forces such as supply, and demand are balanced and in the absence of external influences the values of economic variables will not change. Affected by Aggregate Demand and Aggregate Supply.
Foreign Exchange Market
A market for converting the currency of one country into that of another country.
Goods and Services Market
A market in which firms are sellers of what they produce and households are buyers.
Loanable Amount
Deposits - Mandatory Reserves
Loanable Funds Market
A hypothetical market that illustrates the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders. The supply of savings and the demand for loans.
LRAS (Long Run Aggregate Supply)
LRAS a curve that shows the relationship between price level and real GDP that would be supplied if all prices, including nominal wages, were fully flexible; price can change along the LRAS, but output cannot because that output reflects the full employment output.
LRAS Shift Factors
- resources
- technology
- institutions
- population
- capital stock
Natural Resources
Raw materials supplied by nature.
Resource Market
A market that supplies, firms, companies, and organizations with the needed resources in trade for compensation.
Resource Market Fluctuations
Caused by changes in labor, materials, machines, and other outside factors.
Resource Prices
Changes supply; the amount producers have to pay for things they use.
SRAS (Short Run Aggregate Supply)
SRAS the relationship between planned national output (GDP) and the general price level. We assume that productivity and costs of production and the state of technology is constant in the short run when drawing SRAS.
Short Run vs. Long Run
The short run-in macroeconomics is a period in which wages and some other prices are sticky. The long run is a period in which full wage and price flexibility, and market adjustment, has been achieved, so that the economy is at the natural level of employment and potential output.
Short Run Macroeconomic Equalibrium
When the quantity of aggregate output supplied is equal to the quantity demanded.
SRAS Shift Factors
- Changes in Resource Price
- Changes in Expected rate of Inflation.
- Other supply shocks.
Supply Shocks
Sudden, unexpected changes in aggregate supply.
Unanticipated decrease in AD
Will increase the amount of supply available and may lessen the price.
Unanticipated increase in AD
Will lessen supply and increase price.
