Aggregate Demand
The total quantity of all final goods and services that consumers, businesses, government, and foreigners want to buy at each price level
What is aggregate demand?
The total quantity of final goods and services firms are willing and able to produce at each price level
What is aggregate supply?
The fraction of any change in disposable income that is spent on consumer goods
What is the marginal propensity to consume (MPC)?
The intersection of aggregate demand and short-run aggregate supply determines the short-run equilibrium price level and this metric
What is real GDP (or real output)?
The use of government spending and tax policies to influence macroeconomic conditions
What is fiscal policy?
This effect explains why a higher aggregate price level reduces the purchasing power of household savings, leading to a decrease in consumer spending
What is the real balances effect (or wealth effect)?
Because production costs are relatively inflexible in the near term, the short-run aggregate supply curve typically has this shape
What is upward sloping?
This fraction plus the marginal propensity to consume always equals exactly one
What is the marginal propensity to save (MPS)?
A situation where the economy's short-run equilibrium output level is below its full-employment output level
What is a recessionary gap?
To combat a recession, the government should implement this specific type of fiscal policy
What is expansionary fiscal policy?
This effect explains why a higher price level drives up the demand for money, raising interest rates and reducing business investment
What is the interest rate effect?
In the long run, the aggregate supply curve is entirely vertical at this specific level of real GDP
What is full-employment output (or potential output)?
The mathematical formula for the simple spending multiplier is one divided by this
What is the marginal propensity to save (MPS)?
An economy experiencing both high inflation and high unemployment simultaneously due to a leftward shift in short-run aggregate supply
What is stagflation?
A decrease in government spending or an increase in personal income taxes are examples of this policy
What is contractionary fiscal policy?
If the government significantly increases its spending on infrastructure, the aggregate demand curve shifts in this direction
What is to the right?
A sudden, sharp increase in the price of a critical natural resource, such as oil, represents this type of negative macroeconomic event
What is a supply shock?
If the marginal propensity to consume is 0.8, the spending multiplier has this numerical value
What is 5?
If aggregate demand shifts to the right while the economy is already at full employment, it creates this specific type of output gap
What is an inflationary gap?
Programs like unemployment compensation that automatically increase government spending during a recession without the need for new legislation
What are automatic stabilizers?
An increase in the income of a major trading partner will cause a nation's aggregate demand to increase due to a rise in this specific component
What are net exports?
Wages and resource prices that are slow to adjust to changes in the economy are referred to by this informal term
What are sticky wages (or sticky prices)?
This specific multiplier is always one less than the spending multiplier and is mathematically negative when taxes increase
What is the tax multiplier?
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Completed the silly act
This phenomenon occurs when government deficit spending drives up interest rates, consequently reducing private investment
What is crowding out?