Use Sophia to knock out your gen-ed requirements quickly and affordably. Learn more
×

Aggregate Supply and Aggregate Demand

Author: Kate Eskra

Source: Image of Aggregate Supply and Aggregate Demand Graph created by Kate Eskra, Image of Aggregate Demand created by Kate Eskra, Image of SRAS created by Kate Eskra, Image of LRAS created by Kate Eskra

Video Transcript
Terms to Know
Aggregate Demand

Total amount of goods and services demanded in an economy at a specific point in time and at a prevailing price level.

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.

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.

LRAS

Long Run Aggregate Supply; total amount of goods and services supplied in an economy in the long run.

SRAS

Short Run Aggregate Supply; total amount of goods and services supplied in an economy in the short run.

Wealth Effect

Perception that wealth has increased, resulting in an increase in consumption, C.