59 Key Terms
Key Terms
aggregate demand (AD): the amount of total spending on domestic goods and services in an economy
aggregate demand (AD) curve: the total spending on domestic goods and services at each price level
aggregate demand/aggregate supply model: a model that shows what determines total supply or total demand for the economy, and how total demand and total supply interact at the macroeconomic level
aggregate supply (AS): the total quantity of output (i.e. real GDP) firms will produce and sell
aggregate supply (AS) curve: the total quantity of output (i.e. real GDP) that firms will produce and sell at each price level
full-employment GDP: another name for potential GDP, when the economy is producing at its potential and unemployment is at the natural rate of unemployment
intermediate zone: portion of the SRAS curve where GDP is below potential but not so far below as in the Keynesian zone; the SRAS curve is upward-sloping, but not vertical in the intermediate zone
Keynes’ law: “demand creates its own supply”
Keynesian zone: portion of the SRAS curve where GDP is far below potential and the SRAS curve is flat
long run aggregate supply (LRAS) curve: vertical line at potential GDP showing no relationship between the price level for output and real GDP in the long run
neoclassical economists: economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the long run
neoclassical zone: portion of the SRAS curve where GDP is at or near potential output where the SRAS curve is steep
potential GDP: the maximum quantity that an economy can produce given full employment of its existing levels of labor, physical capital, technology, and institutions
Say’s law: “supply creates its own demand”
short run aggregate supply (SRAS) curve: positive short run relationship between the price level for output and real GDP, holding the prices of inputs fixed
stagflation: an economy experiences stagnant growth and high inflation at the same time
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