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Aggregate Supply and Aggregate Demand

Aggregate Supply and Aggregate Demand

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Author: Colton Cranston
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This lesson covers aggregate supply and aggregate demand.
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Tutorial

Notes on "Aggregate Supply and Aggregate Demand"

Key Terms

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.

Wealth Effect

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.