Potential GDP, or full-employment GDP
, is the maximum quantity that an economy can produce given full employment of its existing levels of labor, physical capital, technology, and institutions.
What is the relationship between aggregate demand and aggregate supply?
Aggregate supply is an economy's gross domestic product (GDP), the total amount a nation produces and sells. Aggregate demand is
the total amount spent on domestic goods and services in an economy
.
What term refers to the relationship between the total quantity that firms choose to produce and sell and the price level for output?
Aggregate supply (AS)
is the relationship between real GDP and the price level for output, holding the price of inputs fixed. The aggregate supply (AS) curve shows the total quantity of output that firms choose to produce and sell (for example, real GDP) at each different price level.
What is the relationship between output and price level?
When
the curve shifts outward the output and real GDP increase at a given price
. As a result, there is a positive correlation between the price level and output, which is shown on the short-run aggregate supply curve.
What denotes the relationship between the total quantity of goods and services and the price level for output?
Aggregate demand is the amount of total spending on domestic goods and services in an economy. The downward-sloping
aggregate demand curve
shows the relationship between the price level for outputs and the quantity of total spending in the economy.
What term is used to describe the maximum quantity that an economy can produce quizlet?
potential GDP
. The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called: … potential GDP.
What is sras curve?
The short-run aggregate supply curve (SRAS)
lets us capture how all of the firms in an economy respond to price stickiness
. When prices are sticky, the SRAS curve will slope upward. The SRAS curve shows that a higher price level leads to more output. There are two important things to note about SRAS.
Why are there two aggregate supply curves?
Like changes in aggregate demand, changes in aggregate supply are not caused by changes in the price level. Instead, they are primarily caused by changes in two other factors. The first of these is a change in input prices. … A second factor that causes the aggregate supply curve to shift is
economic growth
.
How does inflation affect aggregate demand and supply?
Real Balances. When inflation increases,
real spending decreases
as the value of money decreases. This change in inflation shifts Aggregate Demand to the left/decreases.
What factors can increase or decrease aggregate demand?
Aggregate demand can be impacted by a few key economic factors. Rising or falling interest rates will affect decisions made by consumers and businesses.
Rising household wealth
increases aggregate demand while a decline usually leads to lower aggregate demand.
What is the full employment level of output?
Full-employment output is
the level of real gross domestic product (GDP) that exists when the economy's unemployment rate is at its natural rate
. This natural rate of unemployment doesn't correspond to an unemployment rate of zero; rather, it is the unemployment rate that exists when there is no cyclical unemployment.
What is real output?
Actual Output can be defined as
the growth in the quantity of goods and services produced in a country
, or in other words the percentage chance in GDP. While Potential Output is the change in the productive potential of a economy over time.
What causes LRAS to shift?
LRAS can shift if
the economy's productivity changes
, either through an increase in the quantity of scarce resources, such as inward migration or organic population growth, or improvements in the quality of resources, such as through better education and training.
What makes aggregate supply rise and fall?
A shift in aggregate supply can be attributed to many variables, including changes in the size and quality of labor, technological innovations,
an increase in wages
, an increase in production costs, changes in producer taxes, and subsidies and changes in inflation.
What is the equilibrium output?
Output is at its equilibrium
when quantity of output produced (AS) is equal to quantity demanded (AD)
. The economy is in equilibrium when aggregate demand represented by C + I is equal to total output.
Do exports increase price level?
This comparison of prices among different countries gives rise to the net-export effect. In particular,
an increase in the price level increases imports and decreases exports
, which results in a decrease in net exports. A decrease in the price level has the opposite effect on imports, exports, and net exports.
