Vocabulary 1
Aggregate Demand
Aggregate Supply
Equilibrium
Shifts
Graphing
200

Systematic abstractions from reality that allow one to reduce the complexity of the system being studied by taking some conditions as fixed and given.

Assumptions

200
This curve relates the quantity of aggregate output demanded by all entities in a country to the aggregate price level.
What is aggregate demand?
200
This curve relates the aggregate output produced to the aggregate price level.
What is aggregate supply?
200
Short-run equilibrium in the economy occurs at the point where these two curves intersect.
What are short-run aggregate supply and aggregate demand?
200
Suppose wealth in the economy increases. The impact on the aggregate demand-aggregate supply model will be this.
What is a shift to the right of aggregate demand?
200

Suppose that we discover new, more efficient methods of production. This is what would happen to the AS/AD model.

What is a shift to the right of short-run aggregate supply?

400

The “money” (actual currency or “electronic”) that finances exchanges and in turn makes production possible (buying and selling factors) and purposeful (buying and selling products). It lubricates the economic system of exchange by facilitating exchange, but unlike production capital it is not used in any process of production.

Capital (Financial Capital)

400
The aggregate demand curve has this general shape?
What is a downward sloping curve?
400
The short-run aggregate supply curve generally has this shape.
What is an upward sloping curve?
400
Long-run equilibrium occurs at the intersection of these curves.
What are short-run aggregate supply, aggregate demand and long-run aggregate supply?
400

You will squeal with delight when you remember that these are the three main shifters of the short-run aggregate supply curve.

What are changes in productivity, input prices, and Government actions?

400

An economist has just finished graphing a leftward shift in aggregate demand, leading to a recessionary gap. What other graph can we depict this shift on, and how would we do it? 

What is a movement to underneath the PPC?

OR

What is placing a point on the trough of the Business Cycle?

600

C – the total expenditure individuals make as consumers purchasing
things like clothes, food, new cars, haircuts, etc.

Consumption

600
The wealth effect argues that aggregate demand is downward sloping due to the aggregate price level's impact on this.
What is the purchasing power of consumers' assets?
600
The short-run aggregate supply curve is takes on its shape primarily for this reason.
What are sticky prices and wages?
600
A change that causes a shift in the aggregate demand curve is known by this name.
What is a demand shock?
600
Productivity in the economy improves. This causes the aggregate price level to undergo this change.
What is a reduction in the aggregate price level?
600
In the aggregate demand-aggregate supply model, this variable is on the vertical axis.
What is the aggregate price level?
800

A period during which there has been a prolonged, deep decline in the level of real GDP.

Depression

800
This effect argues aggregate demand is downward sloping because as the interest rate changes, due to a change in the demand for money, this impacts consumption and investment spending.
What is the interest rate effect?
800
The long-run aggregate supply curve generally has this shape.
What is a vertical line?
800
Suppose short-run aggregate supply intersects aggregate demand below potential output. This implies that this exists.
What is a recessionary GDP gap?
800
Suppose the economy is in long-run equilibrium. Expectations in the economy improve and this is the ultimate result.
What is an inflationary GDP gap?
800

A pandemic tears through a country, causing many businesses to think twice about whether or not they should be investing at the moment. This is what will happen in the short-run and the long-run.

What is SRAS will shift to the left and LRAS will shift left as well.

1000

The basic inputs we use to produce. They include natural resources, labor and capital.

Factors of Production

1000

These are the three non-government-related shifters of the aggregate demand curve.

What are changes in Consumption, changes in Gross Private Investment, and changes in Net Exports?

1000
The long-run aggregate supply curve is centered around this production level.
What is the natural rate of output (corresponding to the natural unemployment rate)?
1000
If we have an inflationary GDP gap, then this must be true.
What is short-run aggregate supply and aggregate demand intersect to the right of potential output?
1000

 In the long-run, the economy is self-correcting because this occurs.

What is nominal prices change to reflect current output, shifting short-run aggregate supply closer to a long-run equilibrium?

1000

Currently the country is experiencing an inflationary gap. This is what is shown on the AS/AD model in the short run, and in the long-run, this is the curve that will shift to the left because _________________.

The SRAS will shift left, because in the long-run wages are flexible OR prices of inputs and other resources will increase.

M
e
n
u