+
Cards In This Set
| Front | Back |
|
What does the aggregate demand and aggregate supply model explain?
|
Fluctuations in RGDP and the price level
|
|
What does the intersection of the aggregate demand curve & the aggregate supply curve determine?
|
Real GDP & the price level
|
|
What causes fluctuations in RGDP and price level?
|
Shifts in the aggregate supply/demand curves
|
|
What shows the relationship btw the price level & the quantity of real GDP demanded by households, firms, & the govt?
|
Aggregate demand curve
|
|
What shows the relationship in the short run btw the price level & the quantity of RGDP supplied by firms?
|
Short-run aggregate supply curve
|
|
How is the aggregate demand & supply model different from the demand & supply in individual markets model?
|
Aggregate curves apply to the whole economy, not just one market
|
|
Why is the aggregate demand curve downward sloping?
|
A fall in the price level increases the quantity of RGDP demanded
|
|
What are the four components of GDP?
|
Consumption, Investment, Government purchases, & Net eXports
|
|
What must we assume when considering the affects of price level on each of the components of aggregate demand?
|
Government purchases are determined by the policy decisions of lawmakers & are not affected by changes in the price level
|
|
What components of aggregate demand does price level affect? (3)
|
1. consumption2. investment3. net exports
|
|
What is the most important variable determining the consumption of households?
|
Current income
|
|
What relationship does income have with consumption?
|
As income rises, consumption rises, vice versa
|
|
Households assets - households debts =
|
Household wealth
|
|
What is household wealth?
|
The difference btw the value of a household's assets & the value of its debts
|
|
What relationship does household wealth have with consumption?
|
As household wealth rises, consumption rises, vice versa
|
