-change in consumer spending -change in investment spending -change in government spending -change in export spending immediate short run aggregate supply employment productivity determinants of aggregate demand when unit production cost decreases

determinants of aggregate demand

shifts curve left consumer expectation effect on aggregate demand menu costs consumer spending on aggregate demand consumer spending functions

consumer spending on aggregate demand

if inflation is expected, AD will shift right... if inflation is not expected, AD will stay the same or fall consumer expectation effect on aggregate demand input prices long run aggregate supply real balance effect

consumer expectation effect on aggregate demand

Aggregate Demand and Aggregate Supply

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Economics - Macroeconomics

georgepetenjk Created by 10 mon ago

Cards in this deck(59)

a schedule that shows the various amounts of real domestic output that domestic and foreign buyers desire to purchase at each possible price level - real GDP desired at each price level - inverse relationship

when price level decreases, purchasing power increases

earn interest rate falls, investment spending increases

when domestic price decreases, net exports increased

-change in consumer spending -change in investment spending -change in government spending -change in export spending

shifts curve left

the total dollar value of all assets owned by consumers in the economy minus the dollar value of their liabilities

consumers can increase their consumption spending by borrowing

shifts right

if inflation is expected, AD will shift right... if inflation is not expected, AD will stay the same or fall

consumer wealth household borrowing consumer expectation personal taxes

an increase in personal income taxes would reduce disposable income

shift AD left

Real interest rates - expected returns - expectations about future business conditions - technology - degree of excess capacity - business taxes

right

as government spending increases, aggregate demand increases (as long as interest rates and tax rates do not change)

more transportation projects

-Aggregate demand decreases -Less military spending

National income abroad Exchange rates Dollar depreciation Dollar appreciation

a measurement of the value of one nation's currency relative to the currency of other nations

increase in dollar price of foreign currency/ less valuable in terms of other currencies

when a dollar becomes more valuable in terms of other currencies

shifts AD right increases net exports

shifts AD left decreases net exports

a schedule showing the level of real domestic output available at each possible price level relationship depends on time horizon total real output produced at each price level

both input and output prices are fixed

input prices are fixed, output prices are flexible

both output and input prices vary

always operate at full employment

below full employment, unemployment rate highest

unemployment rate decreases, not operating at full employment nor unemployment

Input prices, productivity, and the legal/institutional environment

Domestic resource prices (labor, capital, land) Prices of imported resources (imported oil, exchange rates)

AS shifts right

increases in productivity reduce costs, AS shifts right decreases in productivity increases costs, AS shifts left

total outputs/total inputs

total input cost/total output

Legal changes alter per-unit costs of output Taxes and subsidies Extent of government regulation

can be shortages and surpluses if they do not line up

AD increases

full employment level of GDP (Potential GDP)

actual GDP

inflationary gap

Recessionary Gap

Decreases in AS

Prices are downwardly inflexible Fear of price wars Menu costs Wage contracts Efficiency wages Minimum wage law

tends to make the price level more flexible rather than less flexible.

costs that occur from changing prices

firms rarely profit from cutting their product prices if they cannot also cut their wage rates

cannot escape contract, have to keep price high to maintain profit

price(quantity) - total cost

firms voluntarily pay above-equilibrium wages to boost worker productivity

laws that set a floor for wage rates - that is, a minimum hourly rate for any kind of labor

decreases in AD

have a direct relationship

measures how much larger the final change in GDP will be given the initial change in spending price levels and average wage levels ar becoming more flexible downward

shifts in AD to embody an "initial change" in spending

change in real GDP/initial change in spending

multiplier x initial change in spending

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