Business of Economics Final Study

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140 cards   |   Total Attempts: 182
  

Cards In This Set

Front Back
What does the aggregate demand and aggregate supply model explain?
Fluctuations in RGDP and the price level
What does the intersection of the aggregate demand curve & the aggregate supply curve determine?
Real GDP & the price level
What causes fluctuations in RGDP and price level?
Shifts in the aggregate supply/demand curves
What shows the relationship btw the price level & the quantity of real GDP demanded by households, firms, & the govt?
Aggregate demand curve
What shows the relationship in the short run btw the price level & the quantity of RGDP supplied by firms?
Short-run aggregate supply curve
How is the aggregate demand & supply model different from the demand & supply in individual markets model?
Aggregate curves apply to the whole economy, not just one market
Why is the aggregate demand curve downward sloping?
A fall in the price level increases the quantity of RGDP demanded
What are the four components of GDP?
Consumption, Investment, Government purchases, & Net eXports
What must we assume when considering the affects of price level on each of the components of aggregate demand?
Government purchases are determined by the policy decisions of lawmakers & are not affected by changes in the price level
What components of aggregate demand does price level affect? (3)
1. consumption2. investment3. net exports
What is the most important variable determining the consumption of households?
Current income
What relationship does income have with consumption?
As income rises, consumption rises, vice versa
Households assets - households debts =
Household wealth
What is household wealth?
The difference btw the value of a household's assets & the value of its debts
What relationship does household wealth have with consumption?
As household wealth rises, consumption rises, vice versa