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AP Economics Ch 28 Vocab

Aggregate Demand and Aggregate Supply Chapter
STUDY
PLAY
Aggregate demand curve
shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world
Wealth effect of a change in the aggregate price level
effect on consumer spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers' assets
interest rate effect of a change in the aggregate price level
effect on consumer spending and investment spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers' and firms' money holdings
Aggregate supply curve
shows the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy
Nominal wage
dollar amount of the wage paid
Sticky wage
nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages
Short-run aggregate supply curve
shows the relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed
Long-run aggregate supply curve
shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible
Potential output
level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible
AD-AS Model
the aggregate supply curve and the aggregate demand curve are used together to analyze economic fluctuations
Short-run macroeconomic equilibrium
when the quantity of aggregate output supplied is equal to the quantity demanded
short-run equilibrium aggregate output
the quantity of aggregate output produced in the short-run macroeconomic equilibrium
demand shock
event that shifts the aggregate demand curve
Supply shock
event that shifts the short-run aggregate supply curve
Stagflation
combination of inflation and falling aggregate output
Long-run Macroeconomic Equilibrium
when the point of short-run macroeconomic equilibrium is on the long-run aggregate supply curve
Recessionary gap
when aggregate output is below potential output
Inflationary gap
when aggregate output is above potential output
Output gap
the percentage difference between actual aggregate output and potential output
Self-correcting
when shocks o aggregate demand affect aggregate output in the short run, but not the long run
Stabilization Policy
use of government policy to reduce the severity of recessions and rein in excessively strong expansions