characteristics of aggregate demand
This is the total spending in an economy made up of consumption, investment, government spending, and net exports.
What is aggregate demand?191
The income households have after taxes are deducted is known as this.
What is disposable income?198
Spending by firms on capital goods such as machinery and factories is known as this.
What is investment?207
Goods such as defense and street lighting, which the private sector would not efficiently supply, are called these.
What are public goods?214
This type of aggregate supply curve is upward-sloping because wages and input prices are fixed, allowing firms to increase output when prices rise.
What is the Short-Run Aggregate Supply curve?
This curve shows the relationship between the price level and real output in the economy.
What is the aggregate demand curve?191
This measures the proportion of extra income that is spent rather than saved.
What is the marginal propensity to consume?198
This type of investment subtracts depreciation from gross investment.
What is net investment?207
Government decisions on spending, tax, and borrowing are known as this policy.
What is fiscal policy?214
A sudden, unexpected rise in wages, raw material prices, or taxes can cause this event, shifting SRAS significantly.
What is a supply-side shock?
A fall in purchasing power when prices rise explains why AD slopes downward and is known as this effect.
What is the wealth effect?192
When household wealth rises, consumption tends to increase due to this effect.
What is the wealth effect?200
When this cost of borrowing increases, firms are less likely to invest.
What is the interest rate?208
When a country's currency strengthens, these become more expensive for foreign buyers.
What are exports?215
This curve represents the productive potential of the economy and shows the level of full-capacity output.
What is the Long-Run Aggregate Supply curve?
Lower interest rates, higher confidence, or increased government spending cause this change in the AD curve.
What is a rightward shift (an increase in AD)?193
Interest rates, confidence, wealth, inflation, and availability of credit all influence this component of AD.
What is consumption?198
Keynes described the mood and confidence of business owners using this phrase.
What are animal spirits?208
This measure is calculated as exports minus imports.
What are net exports?215
Improvements in this area—such as better training or higher skill levels—shift LRAS to the right by increasing productive potential.
What are changes in education and skills?
Higher taxes reduce disposable income, causing this movement of the AD curve.
What is a leftward shift (a decrease in AD)?193
This term refers to the flow of unspent income over time, different from the stock held at a given moment.
What is saving?201
This type of profit, kept by firms instead of being paid out to owners, can finance investment.
What is retained profit?209
Tariffs, quotas, and barriers represent this, making exporting more difficult.
What is protectionism?215
This describes the relationship between the average price level and how much output firms are willing to supply in the economy.
What is the aggregate supply curve?