33 terms in 4.2.2
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
Determinants of long-run aggregate supply
Long-run aggregate supply (LRAS) measures the maximum output an economy can produce at full capacity. Technology, produc
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Determinants of long-run aggregate supply
The vertical long-run aggregate supply (LRAS) curve marks the maximum output an economy can sustain. It shows the point
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Determinants of long-run aggregate supply
An economy's institutions — the rules, systems, and organisations that govern how it works — shape how much output the e
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Determinants of long-run aggregate supply
The Keynesian AS curve shows that the economy can produce more output without raising prices when spare capacity exists.
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Determinants of long-run aggregate supply
Long-run aggregate supply (LRAS) — the total output an economy can produce when all its resources are fully and efficien
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Determinants of short-run aggregate supply
Short-run aggregate supply (SRAS) tells us how much output all firms produce at different price levels. Higher prices en
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Determinants of short-run aggregate supply
When firms' costs rise, they supply less at every price level. This shifts the short-run aggregate supply (SRAS) curve t
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
Determinants of short-run aggregate supply
Short-run aggregate supply (SRAS) — the total output that all firms in the economy are willing and able to produce at di
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The circular flow of income
National income measures the total value of everything an economy produces, earns, or spends in a given period. Economis
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The circular flow of income
Nominal income is the actual money amount you earn. Real income adjusts that figure for inflation, showing what your inc
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The circular flow of income
Real national income measures how much an economy actually produces, after stripping out the distorting effect of rising
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The circular flow of income
Money flows continuously between households and firms in a loop. At any point in that loop, the total value of income, o
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The circular flow of income
Injections add money into the circular flow of income. Withdrawals remove money from it. The three injections are invest
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The circular flow of income
When injections into the economy rise above withdrawals, national income grows. When withdrawals exceed injections, nati
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The circular flow of income
At the heart of macroeconomics is the idea that money flows continuously around the economy between households and firms
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The determinants of aggregate demand
Aggregate demand (AD) is the total amount of spending on goods and services across a whole economy at a given price leve
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The determinants of aggregate demand
Aggregate demand (total spending in the economy) has four components. Different factors drive each one up or down, shift
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The determinants of aggregate demand
When national income rises, firms need more capital to meet higher demand. The accelerator shows that this causes invest
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The determinants of aggregate demand
Saving means setting aside part of your income rather than spending it. Several factors — including interest rates, conf
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The determinants of aggregate demand
Saving means households set aside income instead of spending it. Investment means firms spend money on new capital goods
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts
The determinants of aggregate demand
Aggregate demand (AD) — the total spending on goods and services in an economy at a given price level — is made up of co
How the macroeconomy works: the circular flow of income, AD/AS analysis and related concepts