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AD-AS Model: Shifts in Aggregate Demand definitions

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  • Aggregate Demand
    Total spending on goods and services from households, businesses, government, and net exports within an economy.
  • Short Run Equilibrium
    Intersection of aggregate demand and short run aggregate supply, determining current price level and real GDP.
  • Long Run Equilibrium
    Point where aggregate demand, short run aggregate supply, and long run aggregate supply meet, reflecting stable GDP.
  • Price Level
    Average of current prices for all goods and services in an economy, used to track inflation or deflation.
  • Real GDP
    Value of all goods and services produced, adjusted for inflation, indicating true economic output.
  • Short Run Aggregate Supply
    Total production of goods and services available in the economy at different price levels for a limited period.
  • Long Run Aggregate Supply
    Maximum sustainable output determined by factors of production, unaffected by price changes.
  • Demand-Pull Inflation
    Rise in prices caused by increased aggregate demand, pushing price levels higher in the economy.
  • Cyclical Unemployment
    Joblessness resulting from downturns in aggregate demand, often linked to recessions.
  • Investment Spending
    Expenditures by businesses on capital goods, influencing aggregate demand and economic growth.
  • Government Purchases
    Spending by the public sector on goods and services, directly impacting aggregate demand.
  • Net Exports
    Difference between a country's exports and imports, contributing to aggregate demand.
  • Recession
    Period of declining economic activity, marked by reduced aggregate demand and lower GDP.
  • Hot Economy
    Situation where real GDP temporarily exceeds long run equilibrium, often due to overemployment and resource overuse.
  • Factors of Production
    Inputs such as labor, capital, and land that determine the economy's long run output capacity.