Ch.12 Flashcards
Aggregate Demand
relationship b/w aggregate price level and quantity of aggregate output (GDP)
Aggregate Supply is equal to
GDP
GDP is the
supply
C+I+G+X-IM is the
demand
Y is the
income
Short Run Aggregate Supply
wages are sticky, slow to adjust
Long-Run Aggregate Supply
wages fully flexible
Supply is function of
Profits
EX: Profits increase then Supply increase
Factors that shift AS Curve
- input prices
-nominal wages
-productivity
AS shifts right when
-input prices decrease, profits increase, GDP increase
-wages decrease, profits increase, GDP increase
-productivity increase, profits increase, GDP increase
AS shifts left when
-input increase, profits decrease, GDP decrease
-wages increase, profits decrease, GDP decrease
-productivity decrease profits decrease, GDP decrease
Recessionary Gap
-economy in recession
-unemployment high
-overtime high unemployment then low wages then SRAS shifts right
-YA increase when it equals to YP
Inflationary Gap
-economy overheating
-unemployment low
-overtime wages increase then SRAS shifts left
-YA decrease when it equals to YP
3 Factors that shift LRAS
-physical capitol
-human capitol
-technology
in LRAS, if profit increases then
AS increases
In LRAS, if profit decreases then
AS decreases
In LRAS if profits remain the same then
AS also remains the same
if LRAS shifts
its bc of economic growth
Potential Output
level of gdp in long run
Wealth Effect
Agg price level increases, purchasing power decreases, GDP decreases
Interest Rate Effect
Agg price level increases, purchasing power decreases, savings decreases
5 Factors that shift AD
-expectation
-wealth
-fiscal policy
-monetary policy
Effects of fiscal policy
G, Taxes, Transfers increases then GDP increases
Effects of monetary policy
MS increases, interest rate decreases, GDP increases
MS decreases, interest rates increase, GDP decreases
SRAS shifts right when
Input prices and wages decrease then GDP increases
Productivity increases, then GDP increases
SRAS shifts left when
input prices and wages increase then GDP decreases
productivity decreases then GDP decreases
if PE decreases and GDP increases it creates
deflation and economic growth
