Aggregate Expenditures and Macroeconomic Equilibrium

An increase in spending (investment, government, or exports) leads to a larger increase in overall income, amplified by the multiplier.

Factors that increase spending in the economy (investment, government spending, exports).

Factors that decrease spending in the economy (savings, taxes, imports).

A state where total injections equal total withdrawals, meaning spending and income are balanced.

A situation where the economy falls short of full employment, requiring an increase in spending to reach full employment.

An economic situation indicating the economy is overheating above full employment, requiring a decrease in spending to cool it down.

A graph showing the relationship between the overall price level in an economy and the total demand for goods and services.

Changes in the price level impacting the buying power of consumers, thereby affecting aggregate demand.

Higher domestic prices make exports less competitive, leading to reduced exports and aggregate demand.

Higher prices make it harder for citizens to earn money, reducing overall demand (aggregate demand).

Total demand for goods and services in an economy at a given price level.

Increased consumption activity pushing the aggregate demand curve to the right, signifying more demand at all price levels.

Decreased demand at every price level, shifting the AD curve to the left.

Relationship between the overall price level and the total output of goods and services in an economy.

Aggregate supply is unaffected by price in the long run; determined by resources and technology.

Aggregate supply is affected by the price level in the short run; output can rise as prices rise, but this is temporary.

Improvements in productivity, causing the long-run aggregate supply curve to shift to the right, signifying more output.

Factors like taxes or falling expectations that reduce the incentive to produce, leading to a leftward shift in short-run aggregate supply curve.

Aggregate output at the equilibrium price level. The intersection of the long-run aggregate supply (LRAS) and the aggregate demand (AD) curves.

The LRAS curve is vertical, meaning output is unaffected by price levels in the long run because prices and wages fully adjust.

The SRAS curve slopes upward, meaning firms increase output when prices rise due to sticky prices and wages. In simpler terms, firms produce more when prices are rising.

Technological advancements, increased human capital, trade, and innovation/R&D shift the LRAS curve.

Input prices, productivity, taxes/regulations, firms' market power, inflationary expectations shift the SRAS curve.

The intersection of LRAS and AD curves, where the economy is at full employment.

The intersection of SRAS and AD curves; can be above or below full employment—leading to inflationary pressure or recession respectively.

Initial spending generates income, leading to further spending based on marginal propensities to consume and save.

Inflation caused by increased aggregate demand exceeding the economy's output at full employment.

Inflation resulting from a supply shock that shifts the short-run aggregate supply (SRAS) curve to the left, decreasing output and increasing prices.

A situation where all available labor resources are being utilized.

The amount by which government spending exceeds tax revenue in a year.

Spending required by law, e.g., Social Security, healthcare for seniors, and national debt interest.

Spending decided upon by the legislature and signed by the president; includes things like national defense, education, and environmental protection.

The amount by which government tax revenue exceeds spending in a year.

The total accumulation of past deficits minus surpluses.

Increasing government spending OR reducing taxes to encourage economic growth during a recession.

The part of the national debt held by individuals and institutions outside the government.

Decreasing government spending OR increasing taxes to reduce inflation or overheating economy.

Delays in collecting, processing, recognizing trends in economic data, policy decision making, and implementing a policy.

The delay in implementing fiscal policy to address an economic problem.

When expansionary policies are implemented during an economic recovery or when contractionary measures are necessary but not taken during a recession.

Increased government spending can reduce private investment.

The idea that the economy corrects itself over time without government intervention.

A period of strong economic growth, high employment, and rising incomes.

A period of economic downturn, marked by falling output, rising unemployment, and reduced incomes.

A situation where aggregate demand (AD) is not equal to the equilibrium level of aggregate supply (AS).

A period with low aggregate demand and output.

Government measures to stimulate economic growth, usually during a recession.

A period with high aggregate demand.