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aggregate demand (AD)
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the amount of total spending on domestic goods and services in an economy
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AD/AS Model
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a model that shows what determines total supply or total demand for the economy, and how total demand and total supply interact at the macroeconomic level
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aggregate supply (AS)
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the total quantity of output (i.e. real GDP) firms will produce and sell
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long run aggregate supply (LRAS) curve
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vertical line at potential GDP showing no relationship between the price level for output and real GDP in the long run
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intermediate zone
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portion of the SRAS curve where GDP is below potential but not so far below as in the Keynesian zone; the SRAS curve is upward-sloping, but not vertical in the intermediate zone
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Keynes' Law
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"demand creates its own supply"
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Keynesian Zone
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portion of the SRAS curve where GDP is far below potential and the SRAS curve is flat
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neoclassical economists
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economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the long run
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neoclassical zone
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portion of the SRAS curve where GDP is at or near potential output where the SRAS curve is steep
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potential GDP
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the maximum quantity that an economy can produce given full employment of its existing levels of labor, physical capital, technology, and institutions
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Say's Law
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"supply creates its own demand"
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short run aggregate supply (SRAS) curve
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positive short run relationship between the price level for output and real GDP, holding the prices of inputs fixed
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stagflation
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an economy experiences stagnant growth and high inflation at the same time
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