CH11: Aggregate Demand & Aggregate Supply Flashcards
What does the AD curve represent?
Total demand for goods/services at various price levels.
What does the AS curve represent?
Total supply of goods/services at various price levels.
What is the difference between SRAS and LRAS?
SRAS is upward sloping; LRAS is vertical. / Quantity and productivity of factors of production.
Why does the AD curve slope downward?
Wealth effect, interest rate effect, and international trade effect.
Why is it politically difficult to raise VAT in South Africa?
Due to the high number of poor households who would be disproportionately affected.
what happens when ad shifts right due to expansionary policy?
Higher output and higher price levels (inflation).
what is the interest rate effect?
Lower prices reduce interest rates, increasing investment and demand.
what is the international trade effect?
Lower prices weaken currency, increasing exports and reducing imports.
what is the wealth effect?
Lower prices increase real income, raising demand.
what model is commonly used in modern macroeconomics for policy analysis?
The Aggregate Demand–Aggregate Supply (AD-AS) model.
