ECON CH 13 Flashcards
Aggregate demand
the total demand for goods and services in the economy
AD curve
a curve that shows the negative relationship between aggregate output (income) and overall price level
AD shifters
- gov spending
- net taxes
- MS
shifts AD curve to right
an expansionary monetary policy (increase in MS) does what to the AD curve
shifts AD curve to the right
an expansionary fiscal policy (increase in G or decrease in G) shifts the AD where
AD up
exp: G up, T down, MS up
AD down
cont: G down, T up, MS down
aggregate supply
the total supply of all goods and services in the economy
AS curve
a graph that shows the relationship between aggregate quantity of output supplied by all firms (Y) in an economy and the overall price level
positive slope
in the SR the AS curve has what type of slope
fairly flat
at low levels of aggregate output (recession) the AS curve is what
vertical
in the LR, at potential (full employment), the AS curve is what
only by raising prices (not output)
as the economy approaches max capacity, firms respond to further increases in demand by doing what to prices
- a cost shock (or supply shock) is a change in costs that shifts the AS curve
- factors that affects the economic growth of the economy
- economic policies (supply-sided, deregulations)
shifts in SR-AS curve can be caused by 3 things
cost shock or supply shock
a change in costs that shifts the SR-AS curve
equilibrium price level
is the point at which AD and AS curves intersect
LR-AS
a vertical line that shows the potential (natural) level of output (GDP) the economy can produce without inflation
by higher AD
for short periods of time, output can be pushed above potential level by what
expansion
above LR
recession
below LR
- changes in the economy (cost shocks)
- effects of fiscal policy
- effects of monetary policy
- effects of international trade policies
the AS/AD framework (model) can be used to analyze (4)
AD shift to right
expansionary policy: an increase in MS, tax cuts, or an increase in gov spending does what to AD curve
when AS curve is vertical
neither monetary policy nor fiscal policy has any effect on output when AS curve is what
inflation
an increase in the overall price level
sustained inflation
occurs when the overall price level continues to rise over a fairly long period of time
- demand pull inflation
- cost push inflation
- inflation triggered by expectations
- inflation as monetary phenomenon
4 causes of inflation
demand pull inflation
inflation initiated by an increase in aggregate demand
cost push or supply side, inflation
inflation caused by an increase in production costs
hyperinflation
a period of very rapid increases in the price level
shifts the AS curve to the left
sn increase in inflationary expectations shifts the AS curve where
