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aggregate demand
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the total demand for final goods and services in an economy at a given time
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price level and real GDP
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inverse relationship If price level Increases (Inflation), then real GDP demanded falls.
Decreases (deflation), the real GDP demanded increase
Decreases (deflation), the real GDP demanded increase
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AD shifters
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consumer spending, investment spending, government spending, net exports
NOT CHANGES IN PRICE LEVEL Because they cause a move along the curve
NOT CHANGES IN PRICE LEVEL Because they cause a move along the curve
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wealth effect
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Higher price levels reduce the purchasing power of money. This decreases the quantity of expenditures
Lower price levels increase purchasing power and increase expenditures
Lower price levels increase purchasing power and increase expenditures
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Interest Rate Effect
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occurs when a change in the price level leads to a change in interest rates and, therefore, in the quantity of aggregate demand
Higher interest rates discourage consumer spending and business investment.
Higher interest rates discourage consumer spending and business investment.
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Foreign Trade Effect
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lower price levels in the United States convince customers to buy more American goods and fewer foreign goods.
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real balances effect
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when a price increases, your buying power is decreased, causing you to buy less
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Aggregate supply
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the total amount of goods and services in the economy available at all possible price levels
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short run and long run aggregate supply
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Aggregate Supply differentiates between short run and long-run and has two different curves.
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short run aggregate supply
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•Wages and Resource Prices will not increase as price levels increase.
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long run aggregate supply
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Wages and Resource Prices will increase as price levels increase.
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In long run aggregate supply , price level increases....
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But gdp doesnt
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Shifters of Aggregate Supply
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1. Resource Prices
2. Actions of the Government (ex: taxes, regulations)
3. Productivity (technology)
2. Actions of the Government (ex: taxes, regulations)
3. Productivity (technology)
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If productivity increases,
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output increases and inflation decreases
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Stagflation is most likely to be caused by
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a decrease in aggregate supply
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Stagflation
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a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)
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Increase inflation and unemployment could be explained by
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an increase in inflationary expectations
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If consumer spending increases , what hap in short and long
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in the long run, wages and costs increase
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