Quiz #6 Review Flashcards
aggregate supply and demand curve, X and Y axis
X axis: total output or GDP
Y axis: Price Level
aggregate demand curve
demand for all goods and services in the whole economy
how is the aggregate demand curve measured?
the AD curve is the TOTAL expenditures as measured by CIG(NX)
aggregate supply curve
what we can produce and what we do produce
what direction is the aggregate supply curve?
it is straight up and down!
what does the left side of the aggregate supply curve indicate?
output levels are below full employment (high unemployment!)
(6.4%)
what does the right side of the aggregate supply curve indicate?
output levels are above full employment (good)
4%
Short Run Aggregate Supply Curve
in the short run, we may be producing above or below the long term level
-this creates a short run aggregate supply curve
-
AD curve changes
- change in consumer’s expectations
- change in government policies
- change in foreign variables
SRAS curve shifters
- unexpected change in the price of an important natural resource
- significant change in technology–a technology shock
- labor costs
Change in consumer’s expectations
if everyone starts spending less and saving more, AD shifts left
-if everyone is feeling good about the economy, they spend more, AD shifts right
change in government’s policies
if you lower taxes, AD shifts right
-if you raise taxes, AD shifts left
change in monetary policy
- lower interest rates, AD shifts right
- higher interest rates, AD shifts left
change in money supply
- increase money supply, AD shifts right
- decrease money supply, AD shifts left
foreign income levels
if foreign income rises, AD shifts right
rest of world is richer, they buy more of our stuff, X goes up in CIGXM
exchange rates
if exchange rates cause the US dollar to get weaker, AD shifts right
(our exports become less expensive, other countries buy more of our stuff, X goes up)
unexpected change in the price of an important natural resource
-SRAS curve shifter
-if price of oil goes up, SRAS shifts left
if price of oil goes down, SRAS shifts right
significant change in technology
- SRAS curve shifter
- a negative technology shock would shift SRAS left
- positive technology shock = SRAS shift right
labor costs
- SRAS curve shifter
- rise in labor costs = SRAS shift left
- decline in labor costs = SRAS shifts right
which shifts the AD curve, fiscal or monetary policy?
both shift the AD curve
when you let the market correct itself, what line moves?
the SRAS moves, not AD
why does the SRAS move when markets are left uncorrected?
the cost of labor begins to decline
-a lower cost of labor shifts the SRAS right
how does the automatic mechanism work?
- if we just let the markets play out during a recession, costs and wages will fall
- a decrease in the cost of labor shifts the SRAS right
- we soon reach the right side of the SRAS curve to full employment
aggregate demand and aggregate supply model
a model that explains short-run fluctuations in real GDP and the price level
Aggregate Demand Curve:
a curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and government
short-run aggregate supply curve:
a curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms
