AP Econ - Chapter 11
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aggregate demand-aggregate supply model (AD-AS model)
The Macroeconomic model that uses aggregate demand and aggregate supply to determine and explain the price level and the real domestic output
A schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels.
The tendency for increases in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level.
The tendency for increases in the price level to increase the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases).
foreign purchase effect
The inverse relationship between the net exports of an economy and its price level relative to foreign price levels.
determinants of aggregate demand
- Consumption spending
- Government spending
- Net exports
A schedule or curve showing the total quantity of goods and services supplied (produced) at different price levels.
short-run aggregate supply curve
An aggregate supply curve relevant to a time period in which input prices (particularly nominal wages) do not change in response to the price level.
long-run aggregate supply surve
An aggregate supply curve relevant to a time period in which input prices (particularly nominal wages) are fully responsive to changes in the price level.
determinants of aggregate supply
- input prices
- the legal-institutional environment (1. Changes in taxes and subsidies and 2. changes in the extent of regulation)
A measure of the relationship between a nation's level of real output and the amount of resources used to produce that output.
productivity = total output/total input
equilibrium price level
the price level at which the aggregate demand curve intersects the aggregate supply curve.
equilibrium real domestic output
The gross domestic product at which the total quantity of final goods and services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced (the real domestic output); the real domestic output at which the aggregate demand curve intersects the aggregate supply curve.
Wages that elicit maximum work effort and thus minimize labor cost per unit of output.
- ex: the cost of printing new menus when a restaurant changes its prices.
- (price of changing prices)
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