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