Chapter 20 aggregate supply and demand
aggregate demand
total qty of goods and services demanded in the economy
When real GDP falls in a recession
So does personal invome, corporate profits, consumer spending, investment spending,industrial productions,retail sales, home sales, auto sales etc
Recession
A period of falling incomes and rising unemployment
A depression
A severe recession
When economic conditions deteriorate, much of the decline is
Attributable to reductions in spending on new factories, housing, and inventories.
If the stock market crashes, what will occur
The aggregate demand curve will shift to the left
When firms choose to produce a smaller quantity of goods and services
They lay off workers, expanding the pool of unemployment.
As output falls
Unemployment rises
The wealth effect
explains the downward sloping aggregate supply curve
As the price level falls, the cost of borrowing money will______causing the quantity of output demanded_______. This phenomenon is known as the ____________ effect
fall, rise, interest rate effect
Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to ____________in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore__________and the number of foreign products purchased by domestic consumers and firms (imports) will____.
falls, rise, fall.
The wealth effect
is the negative relationship that exists between consumer spending and price level
a leftward shift in aggregate demand curve means the
price has decreased
A rightward shift in aggregate demand curve means the
price has increased
Net exports will therefore_____________ causing the quantity of domestic output demanded to ______________.This phenomenon is known as the-__________ effect
rise, rise, wealth exchange