Macro test 3 Flashcards
Aggregate Demand
All the goods and services that buyers are willing and able to purchase at different prices.
Shifters of AD
Consumer spending
Investment Spending
Government Spending
Exports and Imports
Consumer spending
Higher Incomes,
Consumer Expectations,
Debt,
Taxes
Investment Spending
Real Interest rates ( Price of Borrowing money )
Business Expectations,
Productivity and Technology,
Business Taxes
Aggregate Supply
Amount of goods and services that firms will produce in an economy at different price levels. Wages and Resources don’t increase as price level increase.
Shifters of AS
Resource Prices,
Actions of the government,
Productivity and Technology
Resource Prices
- Price of Domestic and Imported Resources
- Supply Shock
- Inflationary Expectations ( people expect higher prices = higher wages = lower aggregate supply ).
Actions of the Govenrment
- Taxes
- Subsidies
- Regulations
Long Run AS and shifters
Wages and resource prices will increase as price level increases. LRAS = Full Employment
Shifters
- Availability of materials, population, productivity,
NRU
Stagflation
Stagnate Economy + Inflation seen in a decrease in aggregate supply
Capital Stock
Machinery and tools purchased by businesses that increase their output. This is the only thing that causes economic growth. AS and AD increases.
Classical Views
- Hands off
- Long Run, Wages and costs increase, AS decrease, AD Increase
- Long Run, Wages and cost decrease, AS increase, AD decrease
Keynesian
- government safeguard
- Decrease in AD = Recession
- Increased in AD doesn’t cause inflation
What happens to AS if it’s left alone
A change in AD will not change output, AS is vertical
Sticky Wages
Prevents wages from falling. The government should deficity spend to close the gap.
