Notes on "Aggregate Supply and Aggregate Demand"
Short Run Aggregate Supply (SRAS)
Total amount of good and services supplied in an economy in the short run.
Long Run Aggregate Supply (LRAS)
Total amount of good and services supplied in an economy in the long run.
Aggregate Demand (AD)
Total amount of goods and services demanded in an economy at a specific point in time and at a prevailing price level.
Perception that wealth has increased, resulting in an increase in consumption, C.
Interest Rate Effect
As interest rates fall, consumption increases due to the decrease in the cost of borrowing; as a result, purchases and business investment (Consumption, C, and investment, I, respectively) both increase.
Exchange Rate Effect
Exchange rate movements impact demand; domestic currency depreciation increases the cost of imports, resulting in a potential decrease in imports, M; the lower domestic exchange rate increases foreign demand for domestic goods, increasing exports, X.