Aggregate Demand Definitions

  1. Reflationary Policy
    Policies that increase aggregate demand with the intention of increasing real output and employment
  2. Inflation
    A persistent or continuing rise in the average price level
  3. Macroeconomic Equilibrium
    The level of real output at which aggregate demand equals aggregate supply (AD=AS) alternatively it is the level of income at which withdrawals from the circular flow of income equal injections into the flow
  4. Aggregate Demand
    The total planned spending on real output produced within the economy
  5. Economic Shock
    An unexpected event hitting the economy. Economic shocks can be demand-side or supply-side shocks (and sometimes both) and unfavourable or favourable
  6. Consumption
    Total planned spending by households on consumer goods and services produced within the economy
  7. Rate of Interest
    The reward for lending savings to somebody else (e.g. a bank) and the cost of borrowing
  8. Life Cycle Theory of Consumption
    A theory that explains consumption and saving in terms of how people expect their incomes to change over the whole of their life cycles
  9. Availability of Credit
    Funds available for households and firms to borrow
  10. Credit Crunch
    Occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to obtain financing, and leads to a rise in the cost of borrowing
  11. Distribution of Income
    The spread of different incomes among individuals and different income groups in the economy
  12. Accelerator
    A change in the level of investment in new capital goods is induced by a change in the rate of growth of national income or aggregate demand
  13. Multiplier
    The relationship between a change in aggregate demand and the resulting usually larger change in national income
  14. Marginal Propensity to Consume
    The fraction of an increase in disposable income that people plan to spend on domestically produced consumer goods
Card Set
Aggregate Demand Definitions
Aggregate Demand Definitions