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ECON 1 test 3 ch 8

macroeconomics ch 8 Aggregate Demand & Aggregate Supply

aggregate demand (AD) the qty of all goods & services (Real GDP) at different price levels, ceteris paribus; represents spenders
aggregate demand (AD) curve downward slope b/c 1. real balance effect (wealth), 2. interest rate effect, 3. int'l (foreign) trade effect; inverse relationship between the Price level & the qty demanded of Real GDP
AD curve equation AD = C+I+G+Nx; left side of = sign, house to house movement, right side of = sign, street to street movement; direct relationship, one side of = sign goes up, so does the other & vice versa
real balance effect the change in the purchasing power of dollar-denominated assets that results fr a change in the price level; basically when your money means more, you buy more; house to house movement
interest rate effect the changes in household & business spending that is sensitive to changes in the interest rate; inverse relationship, house to house movement
international trade effect the changes in foreign sector spending as the PL changes; PL down, PP$ up Qty up (buy more) US goods & PL up, PP$ down Qty down (buy less) US goods; house to house movement
monetary wealth the value of a person's monetary assets only
wealth the value of all assets owned, both monetary & nonmonetary
exchange rate the price of one currency in terms of another currency
appreciation an increase in the value of one currency relative to other currencies; PP$ up ->US Ex up US Im down -> Nx up -> AD up
depreciation a decrease in the value of one currency relative to other currencies; PP$ down -> US Ex down US Im up -> Nx down -> AD down
velocity the average # of times a dollar is spent to buy final goods & services in a yr
aggregate supply the qty supplied of all goods & services (Real GDP) at different price levels, ceteris paribus
Short-Run Aggregate Supply (SRAS) Curve a curve that shows the qty supplied of all goods & services (Real GDP) at different price levels, ceteris paribus; represents producers, upward sloping b/c sticky wages & worker misperceptions (house to house)
SRAS shifters (street to street) wage rates (inverse), prices of nonlabor inputs (inverse), productivity (direct), supply shocks (beneficial SRAS up, adverse SRAS down)
short-run equilibrium the cond in the economy when the qty demanded of Real GDP = the (short-run) qty supplied of real GDP; where the AD curve and SRAS curve intersect
natural real GDP the real GDP that is produced at the natural unemployment rate; the real GDP that is produced when the economy is in long-run equilibrium; Qn
long-run aggregate supply (LRAS) curve a vert line at the level of natural real GDP; represents the output the economy produces when wages & prices have adjusted to their equilibrium levels when wkrs do not have any relevant misperceptions; the economy's potential
long-run equilibrium the condition that exists in the economy when wages & prices have adjusted to their (final) equilibrium level when wkrs don't have any relevant misperceptions; graphically LR equilibrium occurs at the intersection of the AD & LRAS curves
LRAS GDP names 1. potential GDP, 2. Natural GDP, 3. Natural Unemployment GDP (Fric + Struc = Nat Unemp), 4. full employment GDP, 5. Maximum Sustainable GDP
LRAS Curve movements economy is too hot = left of SR equilibrium, Inflationary Gap = too much spending; economy is too cold = right of SR equilibrium, Recessionary/Contractionary Gap; economy is just right at LR equilibrium when at SR equilibrium
credit market/loanable funds where you would use the interest rate effect - PL down, PP$ up = more borrowers <aggregate qty demanded increased>, int rate down & PL up, PP$ down = less borrowers <aggregate qty demanded decreased>, int rate up; s = savers, D = borrowers, int rate y-ax
difference between SR & LR SR = adj/changes cannot be made, LR they can
Created by: katt61



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