Level 1 Level 3
Level 2

Aggregate Demand and Supply


14 words 0 ignored

Ready to learn       Ready to review

Ignore words

Check the boxes below to ignore/unignore words, then click save at the bottom. Ignored words will never appear in any learning session.

All None

Ignore?
Aggregate Demand
The sum of all demand in an economy. It can be determined by the equation C + I + G + (X-M)
Aggregate Supply
The sum of all supply in an economy. Shifts in the AS curve are caused by changes in key costs e.g. oil prices or wage levels.
Real output
The level of GDP in an economy, taking account of changes in the price level
The price level
The average price level in an economy. An increase in the average price level represents inflation.
Consumption
The largest proportion of AD (63% approx.) affected by factors such as rates of income tax, consumer confidence, employment levels etc.
Investment
Spending by firms on capital (machinery etc.) (15% approx. of AD) - affected by factors such as business confidence ('animal spirits'), interest rates etc.
Government spending
Spending by government on the public sector, benefits etc. (Presently represents 24% approx of AD).
Net exports
Or net imports! This is the difference between imports and exports. It largely equates to the current account. As the UK generally runs a current account deficit this usually negative (-2% approx. of
Supply-side shock
An unexpected change in an economic variable which shifts AS to the left e.g. a sudden increase in oil prices.
Keynesian aggregate supply
A view that AS can be in equilibrium in the long run short of full employment.
Neo-classical long run aggregate supply
A view that in the long run AS is vertical at the 'natural rate of unemployment' - all shifts in AD without an an increase in LRAS are inflationary.
Neo-classical short run aggregate supply
A view that in the short run AS is not perfectly inelastic i.e. there can be short run trade-offs between higher inflation and higher levels of real GDP.
The wealth effect
The increased confidence people feel if their assets (mainly houses but also shares) increase in value, leading to increased consumption.
The multiplier effect
The extra boost given to AD following an initial injection into the economy, caused by further rounds of spending.