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Dynamic AD-AS Model: Inflation and Recession definitions

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  • Inflation
    Occurs when total spending outpaces production, resulting in rising prices even as real GDP increases.
  • Recession
    Characterized by higher prices and lower GDP, often triggered by supply shocks and weak demand growth.
  • Aggregate Demand
    Represents total spending in the economy, shifting right when spending increases, impacting price levels and output.
  • Short Run Aggregate Supply
    Reflects total production in the short term, sensitive to supply shocks and can shift left or right, affecting equilibrium.
  • Long Run Aggregate Supply
    Indicates potential GDP, shifting right over time due to factors like technology and labor force growth.
  • Price Level
    Measures average prices in the economy, rising during inflation and often increasing during recessions with supply shocks.
  • Real GDP
    Represents total output adjusted for price changes, increasing with economic growth but falling during recessions.
  • Equilibrium
    Occurs where aggregate demand and aggregate supply curves intersect, determining price level and output.
  • Supply Shock
    Unexpected event, such as rising oil prices, that shifts short run aggregate supply, impacting prices and GDP.
  • Potential GDP
    Maximum sustainable output, increasing over time due to improvements in technology and labor resources.
  • Financial Crisis
    Period of credit unavailability and reduced investment, leading to weak aggregate demand and economic downturn.
  • Housing Bubble
    Rapid rise and fall in housing prices, whose collapse can trigger recessions by reducing aggregate demand.
  • Dynamic ADAS Model
    Framework showing year-over-year shifts in demand and supply, used to analyze inflation and recession scenarios.
  • Credit
    Funds available for borrowing, essential for investment; scarcity during crises reduces aggregate demand.
  • Investment
    Spending by firms on capital, influenced by credit availability and affecting aggregate demand.