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Dynamic AD-AS Model: Inflation and Recession definitions

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  • Inflation
    A period marked by rising prices due to total spending outpacing total production, causing the price level to increase.
  • Recession
    An economic downturn characterized by lower GDP and higher prices, often triggered by shocks like financial crises or supply disruptions.
  • Aggregate Demand
    The total spending on goods and services in an economy, represented as a curve shifting right when spending increases.
  • Aggregate Supply
    The total production of goods and services in an economy, with its shifts reflecting changes in productive capacity.
  • Short-Run Aggregate Supply
    A curve showing total production in the short term, sensitive to temporary shocks like oil price changes.
  • Long-Run Aggregate Supply
    A curve representing potential GDP, shifting right as technology or labor force grows, unaffected by temporary shocks.
  • Price Level
    A measure on the vertical axis of the AD-AS graph indicating the average of current prices across the economy.
  • Real GDP
    A measure on the horizontal axis of the AD-AS graph showing the economy's output adjusted for price changes.
  • Equilibrium
    The point where aggregate demand and aggregate supply curves intersect, determining the economy's price level and output.
  • Supply Shock
    A sudden event, such as a spike in oil prices, causing a significant shift in short-run aggregate supply.
  • Housing Bubble
    A period of rapidly rising home prices followed by a sharp decline, impacting aggregate demand and triggering downturns.
  • Financial Crisis
    A situation where credit becomes scarce, reducing investment and causing only minor increases in aggregate demand.
  • Potential GDP
    The maximum sustainable output of an economy, increasing with improvements in technology or labor force.
  • Dynamic AD-AS Model
    A framework where aggregate demand and supply curves shift over time, illustrating inflation and recession scenarios.
  • Credit Availability
    The ease with which loans can be obtained, influencing investment and shifts in aggregate demand.