Aggregate Demand & Supply
All 20 Aggregate Demand & Supply terms in the AP Economics glossary — each with a clear, exam-accurate definition. Tap any term for the full explanation, formula, and related interactive graph.
The AD-AS model explains real output and the price level as the intersection of aggregate demand and aggregate supply.
Aggregate demand is the total demand for final goods and services in an economy at a given time.
Aggregate supply is the total supply of final goods and services in an economy at a given time.
The interest rate effect is the change in investment that results from a change in the interest rate due to a change in the price level.
Long-run aggregate supply is the total supply of goods and services when all factors of production are fully employed.
The marginal propensity to consume is the fraction of each additional dollar of disposable income that households spend.
The marginal propensity to save (MPS) is the fraction of each additional dollar of disposable income that households save.
The multiplier effect is the magnified change in total output and income that results from an initial change in spending.
The net export effect is the change in net exports that results from a change in the price level.
Short-run aggregate supply is the total supply of goods and services at different price levels, holding factor costs and resource prices constant.
The spending multiplier measures how much real GDP changes for each dollar change in autonomous spending.
Stagflation is the simultaneous combination of stagnant growth, high unemployment, and high inflation.
The tax multiplier measures the change in real GDP from a change in taxes; it is negative and smaller in size than the spending multiplier.
The wealth effect is the change in consumption that results from a change in the real value of wealth.
The sticky-wage theory says SRAS slopes upward because nominal wages adjust slowly, so a higher price level raises firm profits and output in the short run.
The sticky-price (menu cost) theory says SRAS slopes upward because some firms keep prices fixed despite menu costs, so rising overall prices boost their sales and output.
The misperceptions theory says SRAS slopes upward because producers temporarily mistake a rise in the overall price level for a rise in their own relative price and produce more.
The determinants of aggregate demand are the non-price factors that shift the AD curve by changing consumption, investment, government spending, or net exports.
The determinants of aggregate supply are non-price factors—input prices, productivity, taxes/subsidies on producers, and expectations—that shift the SRAS curve.
The paradox of thrift is the idea that if everyone tries to save more at once, falling spending can lower total income so that aggregate saving doesn't rise and may fall.