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Econ 330 > Chapter 22: AD and AS Analysis > Flashcards

Chapter 22: AD and AS Analysis Flashcards

1
Q

Four components of AD

A
  1. consumption expenditure
  2. planned investment spending
  3. government purchases
  4. net exports
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2
Q

AD curve

A

Y_AD = C + I + G + NX

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3
Q

demand shocks

A

things that can shift the AD curve

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4
Q

7 demand shocks

A
  1. autonomous monetary policy, shift left
  2. government purchases, shift right
  3. taxes, shift left
  4. autonomous net exports, shift right
  5. autonomous investment, shift, right
  6. financial frictions, shift left
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5
Q

AS curve

A

the relationship between the quantity of output supplied and the inflation rate

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6
Q

natural rate of unemployment

A

the rate at which the economy gravitates in the LR

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7
Q

natural rate of output/potential output

A

the level of aggregate output produced at the natural rate of unemployment

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8
Q

SR AS curve shifts

A
  1. expectation of inflation
  2. the output gap
  3. inflation
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9
Q

output gap

A

percentage difference between aggregate output and potential output

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10
Q

output and inflation

A

When Y > Y_P (Y-Y_P > 0), inflation rises

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11
Q

supply shocks

A

when there are shocks to the supply of goods/services in an economy that translates into inflation shocks

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12
Q

inflation shocks

A

shifts in inflation that are independent of the amount of slack in the economy or expected inflation

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13
Q

cost-push shocks

A

when workers push for wages higher than productivity gains which drives up costs and inflation

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14
Q

SR AS curve equation

A

inflation = expected inflation + sensitivity of inflation * (Y - Y_P) + inflation shock

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15
Q

shifts in LR AS Curve

A
  1. total amount of capital in economy, shift right
  2. total amount of labor supplied in economy, shift right
  3. available tech that puts labor and capital together to produce goods/services, shift right
    i.e. people, factories, and technology
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16
Q

general equilibrium

A

the point where all markets are in equilibrium and the quantity of aggregate output demanded equals the quantity of aggregate output supplied

17
Q

self correcting mechanism

A

regardless of where output is initially, it returns eventually to potential output

18
Q

Demand shocks in SR and LR

A

SR: rightward shift, rise inflation and output
LR: only rise in inflation

19
Q

positive supply shock

A

increase in supply

20
Q

stagflation

A

rising inflation but falling level of aggregate output

21
Q

Temporary Supply shocks in SR and LR

A

SR: temporary positive supply shock, shift down, inflation falls and output rises
LR: output and inflation are unchange

22
Q

real business cycle theory

A

aggregate economic fluctuations are shocks in taste and tech and are driving forces behind SR fluctuations

23
Q

Permanent supply shock in SR and LR

A

SR: permanent negative supply shock, decline in output and rise in inflation
LR: permanent decline in output and permanent rise in inflation

24
Q

AD and AS Conclusions

A
  1. economy has self correcting mechanism that returns it to potential output and natural rate of unemployment
  2. shift in AD curve affects output in SR
  3. temp. supply shock affects output and inflation in SR
  4. permanent supply shock affects output and inflation in SR and LR
25
Q

LRAS Curve

A

denotes the amount of output that can be produced by an economy in the LR

26
Q

Factors of potential output

A
  1. amount of capital in the economy
  2. total amount of labor supplied at full employment
  3. available technology that puts labor and capital together to produce goods and services
27
Q

LRAS vs SRAS

A

how long it takes to renegotiate wages
- as wages get renegotiated more often, the closer SRAS curve becomes the LRAS curve

28
Q

what are factors of potential output in the long run?

A
  • number of workers
  • stocks
  • technology
    (price level not included)
29
Q

positive output gap (Y - Yp > 0)

A
  • little slack in economy and labor gets tight
  • workers demand for higher wages
  • firms increase prices
  • higher inflation
30
Q

negative output gap (Y - Yp < 0)

A
  • lots of slack in economy and workers accept smaller increases in wages
  • firms lower prices to sell goods
  • lower inflation
31
Q

influences in today’s inflation

A
  1. rising $ which decreases price of imported goods
  2. synchronous global economic slow down
  3. fall in oil prices
  4. rising commodity prices
  5. rising unit labor costs
    - SRAS shifts up
32
Q

shifts in AS from expected inflation

A
  • rise in expected inflation, AS shifts left
  • fall in expected inflation, AS shifts right
33
Q

shifts in AS from inflation shock

A
  • favorable supply shock, AS shifts right
  • unfavorable supply shock, AS shifts left
34
Q

shifts in persistent output gap

A
  • (Y - Yp) > 0, AS shifts left
  • (Y - Yp) < 0, AS shifts right

Econ 330 (17 decks)

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