Skip to main content
Back

Dynamic AD-AS Model: Fiscal Policy definitions

Control buttons has been changed to "navigation" mode.
1/15
  • Dynamic ADAS Model
    A framework where aggregate supply and demand shift right annually, reflecting ongoing economic growth and changing equilibrium.
  • Fiscal Policy
    Government intervention through spending or taxation to influence aggregate demand and maintain potential GDP.
  • Expansionary Fiscal Policy
    A strategy involving increased government spending or tax cuts to boost aggregate demand during recession.
  • Contractionary Fiscal Policy
    A method using reduced government spending or higher taxes to lower aggregate demand and control inflation.
  • Aggregate Demand
    Total spending on goods and services in an economy, affected by government actions and consumer behavior.
  • Aggregate Supply
    Total output of goods and services available in an economy, shifting right as the economy grows.
  • Long Run Equilibrium
    A state where aggregate demand, short run aggregate supply, and long run aggregate supply intersect at potential GDP.
  • Potential GDP
    The maximum sustainable output an economy can achieve without causing inflation or recession.
  • Short Run Aggregate Supply
    The current level of goods and services produced, adjusting annually alongside aggregate demand and long run supply.
  • Government Spending
    Expenditures by the public sector that directly impact aggregate demand and economic equilibrium.
  • Taxation
    Revenue collection by authorities, influencing consumer spending and aggregate demand through fiscal policy.
  • Recession
    A period when real GDP falls below potential, prompting expansionary fiscal measures to restore equilibrium.
  • Inflation
    A rise in price levels, often occurring when aggregate demand exceeds potential GDP, requiring contractionary policy.
  • Price Level
    A measure of average prices in the economy, shifting with changes in aggregate demand and supply.
  • Market Equilibrium
    A condition where supply and demand balance, ensuring stable prices and output in the dynamic ADAS context.