Glossary
Aggregate Demand (AD)
The total demand for all goods and services produced in an economy at a given price level.
Example:
If consumer confidence soars, leading to more household purchases, the Aggregate Demand curve would shift right.
Aggregate Supply (AS)
The total quantity of goods and services that firms in an economy are willing and able to produce at various price levels.
Example:
A significant technological breakthrough that lowers production costs across many industries would increase Aggregate Supply.
Consumer Spending (C)
The total amount of money spent by households on goods and services in an economy.
Example:
When a new smartphone is released, millions of people buying it contributes to a rise in Consumer Spending.
Fiscal Policy
The use of government spending and taxation to influence the economy.
Example:
When the government increases spending on infrastructure projects to stimulate economic growth, it is implementing Fiscal Policy.
Government Spending (G)
Expenditures by all levels of government on goods and services, including infrastructure projects, defense, and public employee salaries.
Example:
The construction of a new national highway system is a significant form of Government Spending.
Investment Spending (I)
Spending by businesses on capital goods, such as machinery, equipment, and new factories, as well as new residential construction.
Example:
A company building a new manufacturing plant to increase production capacity is an example of Investment Spending.
Negative Supply Shock
A sudden, unexpected event that significantly increases production costs or decreases the availability of resources, causing the SRAS curve to shift left.
Example:
A widespread natural disaster destroying agricultural land would create a Negative Supply Shock for food production.
Net Exports (X-M)
The value of a country's total exports minus the value of its total imports.
Example:
If a country sells more cars to other nations than it buys from them, its Net Exports would be positive.
Positive Supply Shock
A sudden, unexpected event that significantly decreases production costs or increases the availability of resources, causing the SRAS curve to shift right.
Example:
The discovery of a vast, easily accessible new oil reserve would lead to a Positive Supply Shock for energy.
Price Level
A measure of the average prices of goods and services in an economy at a given point in time.
Example:
When the cost of living rises significantly, it indicates an increase in the overall Price Level.
Real GDP
The total value of all final goods and services produced in an economy within a given period, adjusted for inflation.
Example:
If an economy's output of goods and services increases from one year to the next, its Real GDP has grown.
Short-Run Aggregate Supply (SRAS)
The relationship between the price level and the quantity of real GDP supplied by firms in the short run, where some input prices are fixed.
Example:
If the price of oil suddenly drops, firms' production costs decrease, leading to an increase in Short-Run Aggregate Supply.
Tariffs
Taxes imposed on imported goods and services, which increase their cost to domestic consumers and businesses.
Example:
If a country places Tariffs on imported steel, domestic steel producers face less competition, but firms using steel face higher costs.
Unemployment
The state of being jobless while actively seeking employment.
Example:
During an economic recession, many businesses lay off workers, leading to a rise in Unemployment.