16 terms
Aggregate demand and aggregate supply analysis
When the overall price level in the economy changes, economists show this by moving along the existing AD or AS curve. N
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and aggregate supply analysis
Certain events move the entire AD or short-run AS curve left or right. These shifts change the economy's total spending
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and aggregate supply analysis
Short-run AS shifts when firms' costs change temporarily. Long-run AS shifts only when the economy's total productive ca
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and aggregate supply analysis
Long-run aggregate supply (LRAS) shows the maximum output an economy can produce. When the economy's productive capacity
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and aggregate supply analysis
An AD/AS diagram shows where total spending and total output balance. That balance point sets the economy's price level
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and aggregate supply analysis
A shock is a sudden, unexpected event that shifts either total spending or total output in the economy. Demand-side shoc
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and aggregate supply analysis
AD/AS analysis is the core framework economists use to explain how the whole economy behaves — bringing together aggrega
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and the level of economic activity
Aggregate demand (AD) is the total spending on goods and services in an economy. When AD rises or falls, it directly cha
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and the level of economic activity
When spending in the economy rises, that extra money gets passed on and re-spent multiple times. Each round of spending
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and the level of economic activity
The marginal propensity to consume (MPC) measures the fraction of each extra pound of income that households spend. You
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and the level of economic activity
When households spend a larger share of any extra income they receive, each round of the multiplier process passes on mo
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aggregate demand and the level of economic activity
Changes in aggregate demand — the total spending on goods and services in an economy — directly influence the level of e
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Aspects of behavioural economic theory
People cannot always make perfectly rational decisions. Bounded rationality means limited information and brainpower res
Individual economic decision making
Aspects of behavioural economic theory
People do not always make perfectly logical decisions. Instead, mental shortcuts and outside influences push their choic
Individual economic decision making
Aspects of behavioural economic theory
Sometimes people make decisions that benefit others, even at a cost to themselves. They also care whether outcomes feel
Individual economic decision making
Aspects of behavioural economic theory
Behavioural economics challenges the traditional assumption that people always make fully rational decisions, arguing in
Individual economic decision making