aggregate demand and supply

• consumption


  total spending by households on goods and services within the economy
• household indebtedness


  amount of money individuals owe
• interest


  cost of borrowing money or amount you receive for saving money with a financial institution
• investment


  total spending by firms on capital goods within the economy
• depreciation


  decrease in value of a capital good over time due to them deteriorating and wearing out
• gross investment


  total spending by firms on capital goods before depreciation is taken into account
• net investment


  gross investment excluding the amount used to replace existing capital
• government expenditure


  total spending by government within the economy on goods and services
• political priorities


  government spending depends on what the aims and objectives of government are
• net trade balance


  difference in value between exports and imports in an economy
• trade surplus


  when a country exports more than it imports
• trade deficit


  when a country imports more than it exports
• exchange rate


  price of one currency in relation to another
• aggregate supply


  total volume of goods and services produced in an economy
• short-run aggregate supply


  time where wages or factor costs are fixed
• subsidies


  financial support to businesses from government
• supply shock


  an unexpected global event that heavily impacts SRAS
• macroeconomic equilibrium


  where aggregate demand equals aggregate supply
• neoclassical economists


  market forces lead to the best outcome for society - government should not intervene in the allocation of resources in the economy
• keynesian economists


  economy will not always operate at full employment - government must intervene
• long-run aggregate supply


  an economy's output of goods and services relies on its supply of labour, capital, natural resources and available technologies in the long term
• multiplier effect


  occurs when an initial injection into the circular flow causes a bigger final increase in real national income
• negative multiplier effect


  occurs when an initial withdrawal of spending from the circular flow leads to knock-on effects and a bigger final drop in real GDP