Economics- Theme 2.2 + 2.3: Aggregate Demand and Supply

The total level of demand in an economy at a given price level.

C + I + G + (X-M)

Earnings generated and realized on an investment over a particular period of time.

Consumer spending on goods and services

Money consumers have left available after taxes and benefits added.

Increase in capital stock of an economy, leads to creating of real goods.

The value/stock of assets owned

The expenditures of the Government

The use of borrowing, government spending and taxation to manipulate the level of AD and improve macroeconomic performance

Discretionary- Implemented through policy change/ government action Automatic stabilisers- Policies used to offset fluctuations in economic cycle but do not need government intervention or regular policy change.

Contractionary- Reduce AD Expansionary- Increase AD

Spending by foreign consumers on domestic goods and services.

Spending by domestic consumers on foreign produced goods and services.

The difference between the value of exports and imports of an economy.

The price of a currency in terms of another

The total amount of output of goods and services at a given price level in an economy.

At least one factor of production is fixed

A curve that shows the potential amount of real output that will be supplied in the economy in the long run at any given overall price level.

Raw Material/ Energy/ Commodity prices- Increase= Inward, Decrease= Outward Exchange Rate- Weak= Inward, Strong= Outward Tax- Increase= Inward, Decrease= Outward

Classical and Keynesian

In the Long-Run AS is Inelastic and is determined by supply side policies rather than AD.

SRAS will always shift during a boom or recession but will find a way to come back to LRAS (Perfect Inelastic)

One Aggregate supply which is determined by the level of spare capacity within the economy.

When an economy is not fully utilizing its factors of production.

-Change in potential output or productivity -Increase in quantity FOP Increase in Education

More money available for investment. Leads to increase in productivity. Therefore, LRAS and SRAS shift outwards.