IB Economics 3.2 Variations in Economic Activity - Aggregate Demand and Aggregate Supply Key Definitions

The total quantity of real output that all buyers in an economy (consumers, businesses, the government, and foreigners) are willing to purchase over a specific time period, at all possible price levels, ceteris paribus.

The total output produced in an economy at all possible price levels, over a specific time period, ceteris paribus.

All spending made by households on final goods and services during a particular time period.

Factors that shift the aggregate demand curve by affecting its components: consumption (C), investment (I), government spending (G), and net exports (X - M).

Factors that shift the SRAS curve.

An exchange rate is the value of one currency in terms of another currency.

Goods and services produced domestically, and so are included in the calculation of the national output (GDP).

All resources or inputs used to produce goods and services.

All expenditure made by governments on the economy (e.g., roads, hospitals, purchasing of factors of production), excluding transfer payments.

Domestic spending on goods and services produced in external economies, and so must be subtracted from expenditure to accurately measure domestic output.

Taxes paid by households on their incomes.

Taxes levied on spending on goods and services. They are called indirect because while consumers contribute to part or all of the tax, it is the suppliers (firms) who collect and transfer these taxes to the government authorities (consumers pay the taxes indirectly).

A situation where the actual real output of an economy is above its full-employment level of output, resulting in unemployment being lower than the natural rate.

Interest stated as a percentage. It represents the proportion of the amount of money borrowed charged as interest.

All spending on new capital. This includes:

• By firms on physical capital: money spent on assets used to produce goods and services (factories, machinery, offices...).
• By households and firms on new construction: new housing and other new construction assets.

The point where aggregate demand intersects aggregate supply, establishing the price level and the real output (real GDP) of an economy.

Monetary policy is a demand-side policy in which the central bank influences aggregate demand by adjusting interest rates and the money supply.

The level of unemployment that persists even when the economy is operating at full-employment. It consists of the sum of structural, frictional, and seasonal unemployment.

The market value of all the exports (X) of an economy minus the market value of all its imports (M).

When the actual real output of an economy is below its full-employment level of output, resulting in unemployment being higher than the natural rate.

The total output produced in an economy at all possible price levels, when the costs of factors of production are fixed, ceteris paribus.