Chapter 7 Flashcards
Aggregate demand curve
A graph that shows the relationship between the total amount of all goods and services that will be demanded at various price levels.
Aggregate demand
The total demand for all goods and services in the economy during a specific period, the various levels of real output that will be demanded at various price levels.
Fallacy of composition
The assumption that what is true of the parts must also be true of the whole
Interest rate effect
The impact of changes in interest rates on consumption and investment and thus on total spending.
Foreign trade effect
The impact of changes in the price level on exports and imports and this on the quantity of real GDP demanded
Real wealth effect
The impact of changes in the price level on real wealth and thus on the quantity of real GDP demanded
AD shifters / demand-side shocks
Factors that cause the aggregate demand curve to shift
Aggregate supply
The total supply of all goods and services in the economy during a specific period; the various quantities of output that will be supplied at various price levels
Short run
A situation in which firms cannot vary all their inputs or productive resources; thus, they operate with some fixed costs.
Short-run aggregate supply curve
A graph that shows the various levels of real GDP that will be supplied at various price levels in the short run
Keynesian range
The horizontal section of the AS curve that represents high unemployment and low real GDP
Intermediate range
The upward-sloping section of the AS curve that represents high price levels.
Classical range
The vertical section of the AS curve that represents output at its maximum
AS shifters / supply-side shocks
Factors that cause the aggregate supply curve to shift
Equilibrium price level
The price at which quantity demanded equals quantity supplied
Equilibrium level of real GDP
The level of real GDP at which the AD and AS curves intersect
Fiscal policy
The deliberate use of government spending and taxation in order to influence aggregate demand
Monetary policy
Involves the manipulation of the money supply and interest rates by the central bank to influence aggregate demand
Supply-side policies
Policies designed to influence real GDP and the price level by shifting the AS curve
Laffer curve
A curve showing the relationship between tax revenues and tax rates
