All Flashcards
What is Aggregate Demand (AD)?
Total demand for goods and services in an economy at a given price level.
What is Short-Run Aggregate Supply (SRAS)?
The relationship between the price level and the quantity of goods and services firms are willing to supply in the short run.
Define Consumer Spending (C).
Household purchases of goods and services.
Define Investment Spending (I).
Spending by firms on new capital goods.
Define Government Spending (G).
Government purchases of goods and services.
Define Net Exports (X-M).
The value of a country's exports minus the value of its imports.
What is a Negative Supply Shock?
An unexpected decrease in resource availability that increases production costs and decreases SRAS.
What is a Positive Supply Shock?
An unexpected increase in resource availability that decreases production costs and increases SRAS.
Define resource prices.
The cost of inputs used to produce goods and services, such as labor, raw materials, and energy.
Define productivity.
The quantity of goods and services produced from each unit of labor input.
Analyze an AD-AS graph where AD shifts left.
Price level decreases, and real GDP decreases.
Analyze an AD-AS graph where AD shifts right.
Price level increases, and real GDP increases.
Analyze an AD-AS graph where SRAS shifts left.
Price level increases, and real GDP decreases.
Analyze an AD-AS graph where SRAS shifts right.
Price level decreases, and real GDP increases.
In an AD-AS graph, what does a leftward shift of the AD curve indicate?
It represents a decrease in aggregate demand, leading to lower price levels and reduced real GDP.
In an AD-AS graph, what does a rightward shift of the SRAS curve indicate?
It represents an increase in short-run aggregate supply, leading to lower price levels and increased real GDP.
What happens to unemployment when the AD curve shifts to the left?
Unemployment increases as real GDP decreases.
What happens to unemployment when the SRAS curve shifts to the right?
Unemployment decreases as real GDP increases.
In an AD-AS model, what are the axes?
The vertical axis represents the price level, and the horizontal axis represents real GDP.
What does the intersection of the AD and SRAS curves represent?
It represents the short-run equilibrium point, where the aggregate quantity demanded equals the aggregate quantity supplied.
What is the impact of increased government spending on real GDP?
Increased government spending increases AD, leading to a rise in real GDP in the short run.
What is the impact of increased taxes on consumer spending?
Increased taxes reduce disposable income, leading to a decrease in consumer spending.
What is the impact of tariffs on the price level?
Tariffs increase production costs, decreasing SRAS and leading to a higher price level.
How does a reduction in corporate taxes impact SRAS?
It decreases production costs, shifting SRAS to the right.
What is the effect of expansionary fiscal policy on the AD-AS model?
Expansionary fiscal policy (increased government spending or decreased taxes) shifts the AD curve to the right, increasing both price level and real GDP.
What is the effect of contractionary fiscal policy on the AD-AS model?
Contractionary fiscal policy (decreased government spending or increased taxes) shifts the AD curve to the left, decreasing both price level and real GDP.
How does a subsidy for renewable energy affect SRAS?
A subsidy decreases production costs, shifting SRAS to the right.
What is the impact of increased regulations on businesses?
Increased regulations increase production costs, shifting SRAS to the left.
How does government investment in infrastructure impact AD?
It directly increases government spending (G), shifting AD to the right.
What is the effect of tax cuts on investment spending?
Tax cuts increase after-tax profits, which can encourage investment spending, shifting AD to the right.