Explain Aggregate Demand and Supply Analysis in Macroeconomics Flashcards

A model that explains short run fluctuations in real gdp and the price level

A curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the govt

A curve that shows the relationship in the short run between the price level and the quantity of real gdp supplied by firms

Because a fall in the price level increases the quantity of real GDP demanded

When price level rises, the nominal value of household wealth falls, reducing consumption and vice versa

When PL rises, households and firm will borrow more money, leading to higher interest rates, which discourages consumption

When price level rises relative to other price levels, US goods become more expensive, and reduce consumption of US exports

Changes in govt policies, changes in expectations of households and firms, and changes in foreign exports

Actions fed reserve takes to manage money supply and interest rates to pursue macroeconomic policy objectives

Changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives

A curve that shows the relationship in the long run between the price level and the quantity of real GDP supplied

Because changes in the PL do not affect the number of workers, the capital stock or technology, PL in the long run does not affect real GDP

Because firms and workers cannot predict the future price level exactly due to sticky contracts, menu costs, and firms are slow to adjust wages

Higher profits, increased supply and higher wages

Increases in labor force, technological change, expected changes in future price level, adjustments of workers and firms to errors in past expectations about PL, and supply shocks