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13 Cards in this Set

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What is aggregate demand?
A schedule that shows the amounts of real output (real GDP) that buyers collectively desire to purchase at each possible price level.
Relationship btwn real GDP and price level: Direct or Inverse
·Inverse
·Price level rises/drops, Quantity of real GDP demanded drops/rises
What are the three effects of a price-level change that also explain the downslope of the AD curve?
1) Real-balances Effect
2) Interest-Rate Effect
3) Foreign Purchases Effect

·These 3 effects work in opposite direction of Price Level Change
1)Quantity Demanded of Consumption Goods,
2)Investment Goods,
3)Net Exports
What does the real-balances effect do
· Increases in Price Level Lower Purchasing Power of Assets with Fixed Money Value (savings accounts, bonds) thus reducing real GDP (real output)
· Decreases in Price-Level work conversely
What does the Interest-Rate Effect do?
·Increases in Price Level Increase Demand for Money, Raise Interest Rates, and reduce real GDP
·If Price Level Decreases, everything works conversely
What is the Foreign Purchases Effect?
·A rise in the price level reduces the quantity of U.S. goods demanded as net exports (as we buy more foreign goods instead)
What are the 4 determinants of Aggregate Demand?
1) Change in Consumer Spending
2) Change in Investment Spending
3) Change in Government Spending
4) Change in Net Export Spending
What 4 factors cause a change in consumer spending?
1) Consumer Wealth
2) Consumer Expectations
3) Household Debt
4) Taxes
What 5 factors cause a change in investment spending?
1) Interest Rates
2) Technology
3) Expectations
4) Stock of Capital Goods
5) Acquisition, maintenance, operating costs
What 2 factors cause a change in net export spending?
1) Exchange Rates
2) National Income Abroad
What is aggregate supply?
A schedule that shows the level of real GDP that firms will produce at each price level.
Per-unit production cost?
(Total Input Cost)/ (Units of Output)
Productivity?
(Total Output)/(Total Inputs)