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Aggregate Demand and Aggregate Supply

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Aggregate Demand and Aggregate Supply

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1. Macroeconomic short run

When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. The positive relationship between the level of domestic output produced and the aggregate price level of that output.

2. Phillips curve

A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.The positive relationship between the level of domestic output produced and the aggregate price level of that output. A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls.

3. Supply-side boom

A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. The positive relationship between the level of domestic output produced and the aggregate price level of that output. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.

4. Short-run aggregate supply (SRAS)

A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.The positive relationship between the level of domestic output produced and the aggregate price level of that output.

5. Macroeconomic equilibrium

Occurs when the quantity of real output demanded is equal to the quantity of real output supplied. Graphically this is at the intersection of AD and SRAS. Equilibrium can exist at, above, or below full employment. A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls.

6. Deflation

A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A sustained falling price level, usually due to severely weakened aggregate demand and a constant SRAS.

7. Recessionary gap

When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. The amount by which full-employment GDP exceeds equilibrium GDP.

8. Determinants of AS

AS is a function of many factors that impact the production capacity of the nation. If these factors make it easier, or less costly, for a nation to produce, AS shifts to the right. If these factors make it more difficult, or more costly, for a nation to produce, AS shifts to the left. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.

9. Aggregate demand (AD)

The inverse relationship between all spending on domestic output and the aggregate price level of that output. AD measures the sum of consumption spending by households, investment spending by firms, government purchases of goods and services, and net exports (exports minus imports). When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping.

10. Stagflation

A situation in the macroeconomy when inflation and the unemployment rate are both increasing. This is most likely the cause of falling SRAS while AD stays constant. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls.

11. Recession

When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.In the AD and AS model, a recession is typically described as falling AD with a constant SRAS curve. Real GDP falls far below full employment levels and the unemployment rate rises. A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping.

12. Supply shocks

A supply shock is an economy-wide phenomenon that affects the costs of firms and the position of the SRAS curve, either positively or negatively. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping.

13. Demand-pull inflation

This inflation is the result of stronger consumption from all sectors of AD as it continues to increase in the upward-sloping range of SRAS. The price level begins to rise, and inflation is felt in the economy. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls.

14. Foreign sector substitution effect

A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.When the aggregate price of U.S. output increases, consumers naturally begin to look for similar items produced elsewhere. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls.

15. Macroeconomic long run

A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. A period of time long enough for input prices to have fully adjusted to market forces. In this period, all product and input markets are in a state of equilibrium and the economy is operating at full employment (GDPf ). Once all markets in the economy have adjusted and there exists this long-run equilibrium, the LRAS curve is vertical at GDPf. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.

16. Determinants of AD

A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. A function of the four components of domestic spending: C, I, G, and (X – M). If any of these components increases (decreases), holding the others constant, AD increases (decreases), or shifts to the right (left).

17. Interest rate effect

A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. If the aggregate price level rises, consumers and firms might need to borrow more money for spending and capital investment, which increases the interest rate and delays current consumption. This postponement reduces current consumption of domestic production as the price level rises. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.

18. Wealth effect

A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. As the aggregate price level rises, the purchasing power of wealth and savings begins to fall. Higher prices therefore tend to reduce the quantity of domestic output purchased.

19. Inflationary gap

A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets. In the short run, the SRAS curve is typically drawn as upward sloping. When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls. The amount by which equilibrium GDP exceeds full-employment GDP. A graphical device that shows the relationship between inflation and the unemployment rate. In the short run it is downward sloping, and in the long run it is vertical at the natural rate of unemployment.

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19 Questions

❤ If you liked Fatskills, consider supporting us by checking out The Life Manuals You Never Got.

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