Aggregate demand (AD) & aggregate supply (AS) (Chapter 14) Flashcards

1
Q

aggregate demand (AD)

A
  • quantity of goods and services that economic agents want to buy at each price level
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2
Q

interest rate effect

A
  • a higher price level increases money demand and the interest rate, thereby reducing interest and cost
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3
Q

wealth effect

A
  • a higher price level makes consumers feel less wealthy, thereby encouraging PS and reducing C
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4
Q

real exchange rate or foreign purchases effect

A
  • a higher price level makes domestically produced items less attractive, reducing X and encouraging M.
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5
Q

factors affecting components of aggregate demand (AD)

A
  • consumption (C)
  • investment (I)
  • government spending (G)
  • exports (X)
  • imports (M)
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6
Q

shifts in aggregate demand (AD)

A
  • caused by anything that results in more/less spending at any price level
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7
Q

aggregate supply (AS)

A
  • quantity of goods and services that firms choose to produce and sell at each price level
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8
Q

long run aggregate supply (LRAS) or classical aggregate supply

A
  • in the long run, and economy’s production depends on its supplies of resources and available technology
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9
Q

short run aggregate supply (SRAS)

A
  • in the short run output produced and price level move in the same direction
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10
Q

factor prices

A
  • tend to be fixed in short run via contracts (i.e. wages)
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11
Q

unit cost theory

A
  • in order to increase production, firms may have to pay overtime or use less efficient factors
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12
Q

sticky wage theory

A
  • because nominal wages do not adjust immediately to the price level, high prices make production more profitable
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13
Q

Keynesian aggregate supply

A
  • in a depression, supply simply accommodates demand
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14
Q

stagflation

A
  • a period of falling output and prices
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