Chapter 13 Flashcards
What does aggregate mean?
a whole formed by combining several (typically disparate) elements.
What is the aggregate demand and aggregate supply model?
This is a model that explains short term fluctuations in GDP and the price leve
What is aggregate demand?
The total amount of G&S demanded in economy
What does the aggregate demand curve show?
Google:
The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide.
The relationship of the price level and real GDP supplied in the short run.
Draw the graph of the Aggregate Demand curve
What is the aggregate supply?
THe total amount of supplies produced in the economy.
What is the short-run aggregate supply curve?
It illustrates the relationship of price level and real GDP supplied in teh short run
What is the graph for the Short run aggregate demand curve?
Why is the aggregate demand curve downward sloping?
The downward slope illustrates an inverse relationship between the prce level and the real GDP. A decrease in the price level would result an increase in real GDP demanded
What is the wealth effect?
This referst to the effect of change in price level on consumer expenditures.
What is weatlh?
Wealth is the difference between between assets and debts.
What happens when the price level increase?
The real value of House hold wealth decreases/consumer expendaiture also decreases and as such so does GDP.
What is the interest rate affect?
^PL=^Interest
What is interets?
The price for finanicial capital
What is another way to define the interest rate affect?
The impact of a rise in the cost of borrowing on production costs due to price inflation within an economy. The interest rate effect reflects the fact that most consumers and business finance managers will cut back on their borrowing activities when interest rates increase.
Describe the international trade effect
Basically what this means is if exports increase in the US for a particular product imports will decrease because it is cheaper/ better to buy the domestic products produced at home.
Vice Versa
If the imports increase in the US the exports will decrease because they are inversely related. IF it is cheaper to import a product the firm will do that instead then export them
What are the two types of governmental policies?
Monetary and Fiscal
What is a monetary government policy?
This type of policy refers to the federal reserve actions managing interest rates and money supplies toward achieving micro economy objectives.
What is an example of a monetary policy?
A decrease in the interest rate will result things such as investment expenditures and the aggregate demanded will increase.
Draw the graph for a monetary policy
What is a fiscal policy?
This refers to government actiona to manage taxes and government purchase towards achieving mirco economic objective.
What is the graph for a fiscal policy?
What is changes in expectation of households and firms?
IF house holds are pesimistice about future income consumtion will decrease.
In the same hand
if firms are pesimistic anout future projects decrease in investments and AD
What can cause a change in exchange rate and growth in real GDP?
A change in net exports
What is change in foreign variables
Basically what this means is if the imports increase the exports will decrease and vice versa
