AD Flashcards
(20 cards)
What is Aggregate Demand (AD)?
Aggregate demand is the total quantity of goods and services demanded in an economy at a given overall price level and in a given period of time.
What is the formula for Aggregate Demand (AD)?
AD = C + I + G + (X - M)
Where: C = Consumption, I = Investment, G = Government spending, X = Exports, M = Imports.
What factors affect consumption (C) in AD?
Income levels, interest rates, consumer confidence, wealth effect, and taxes.
What factors affect investment (I) in AD?
Interest rates, business confidence, technology, government policies, and exchange rates.
What factors affect government spending (G) in AD?
Government fiscal policy, political decisions, and economic conditions.
What factors affect net exports (X - M) in AD?
Exchange rates, global economic conditions, domestic income, and trade policies.
What is the relationship between AD and the price level?
There is an inverse relationship between the aggregate price level and the quantity of output demanded.
What are the main reasons for the downward sloping AD curve?
Wealth effect, interest rate effect, and international competitiveness effect.
What is the short-run aggregate supply (SRAS)?
SRAS shows the relationship between the total quantity of goods and services produced in the economy and the price level in the short run.
What factors can shift the AD curve?
Changes in consumer confidence, interest rates, government spending, taxes, and exchange rates.
What is an aggregate demand shock?
An aggregate demand shock is an unexpected event that causes a sudden increase or decrease in the total demand for goods and services in the economy.
What is the difference between short-run and long-run aggregate demand?
Short-run aggregate demand reflects total demand at different price levels in the short term, while long-run aggregate demand is determined by the factors of production.
What is the importance of AD in macroeconomics?
AD is crucial in determining overall economic activity, influencing recession and inflation.
What is an inflationary gap?
An inflationary gap occurs when the economy’s aggregate demand exceeds potential output.
What is a deflationary gap?
A deflationary gap occurs when aggregate demand is less than the economy’s potential output.
What role do central banks play in influencing AD?
Central banks influence AD through monetary policy by adjusting interest rates.
What is the multiplier effect in terms of AD?
The multiplier effect refers to the process by which an initial increase in spending leads to a larger increase in national income.
What is the impact of an increase in AD on real GDP and price level?
An increase in AD will lead to an increase in real GDP and potentially a higher price level.
What are supply-side constraints on AD?
Supply-side constraints can limit the impact of increased AD on output.
What is the relationship between AD and economic growth?
Economic growth can occur if AD increases and firms respond by increasing output.
