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What are the differences between a movement *along* the AD curve and a shift *of* the AD curve?
A movement along the AD curve is caused by a change in the price level. A shift of the AD curve is caused by changes in C, I, G, or (X-M).
What are the differences between a movement *along* the SRAS curve and a shift *of* the SRAS curve?
A movement along the SRAS curve is caused by a change in the price level. A shift of the SRAS curve is caused by changes in resource costs, government actions, or productivity.
Compare and contrast fiscal policy and monetary policy.
Fiscal policy involves government spending and taxation, while monetary policy involves managing the money supply and interest rates.
What is the difference between AD and SRAS?
AD represents the total demand for goods and services, while SRAS represents the total supply of goods and services in the short run.
Compare positive and negative supply shocks.
A positive supply shock increases SRAS, while a negative supply shock decreases SRAS.
Differentiate between changes in consumer confidence and business confidence.
Changes in consumer confidence affect consumer spending (C), while changes in business confidence affect investment spending (I).
Differentiate between taxes and subsidies.
Taxes increase costs for consumers and producers, while subsidies decrease costs for consumers and producers.
Compare the effects of increased government spending and increased net exports on AD.
Both increase AD, shifting the curve to the right, leading to higher price levels and real GDP.
What is the difference between short-run and long-run aggregate supply?
SRAS is upward sloping and affected by input prices, while LRAS is vertical and determined by the economy's potential output.
Compare the effects of a decrease in taxes and a decrease in interest rates on aggregate demand.
A decrease in taxes increases disposable income, boosting consumer spending, while a decrease in interest rates encourages investment spending; both shift AD to the right.
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.
How do increased consumer taxes affect AD?
Higher taxes reduce disposable income, decreasing consumer spending and shifting the AD curve left.
How do tariffs on imported inputs affect SRAS?
Tariffs increase the cost of resources for firms, decreasing SRAS and shifting the SRAS curve left.
How do cheaper exports affect AD?
Cheaper exports increase foreign demand, increasing net exports and shifting the AD curve right.
How do reduced corporate taxes affect SRAS?
Lower taxes decrease production costs for firms, increasing SRAS and shifting the SRAS curve right.
How does a decrease in consumer confidence affect AD?
A decrease in consumer confidence will lead to decreased consumer spending, shifting the AD curve to the left.
How does a technological advancement affect SRAS?
Technological advancements increase productivity, leading to a decrease in production costs and shifting the SRAS curve to the right.
How does an increase in government spending affect AD?
An increase in government spending directly increases aggregate demand, shifting the AD curve to the right.
How does a rise in global demand affect AD?
A rise in global demand increases net exports (X-M), shifting the AD curve to the right.
How does an oil crisis affect SRAS?
An oil crisis is a negative supply shock, increasing production costs and shifting the SRAS curve to the left.
How does a decrease in interest rates affect AD?
A decrease in interest rates encourages investment spending, shifting the AD curve to the right.