All Flashcards
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.
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.