Aggregate Demand and Supply Dynamics in Economic Equilibrium

Mr. Clifford introduces aggregate demand and supply, explaining their slopes and how they meet at equilibrium. He discusses how shifts in these curves affect price levels and GDP, using historical examples like the Great Depression to illustrate demand shocks. The video covers short and long run equilibria, recessionary and inflationary gaps, and the economy's self-correcting nature. It highlights the role of government intervention in addressing economic gaps and the concept of sticky wages. The video concludes with a discussion on long run adjustments and the importance of understanding these economic principles.

What does the equilibrium of Aggregate Demand and Supply represent?

• The equilibrium for a single market

• The equilibrium for all markets combined

• The equilibrium for international trade

• The equilibrium for government spending

What happens to price levels and output when Aggregate Demand increases?

• Price levels decrease, output increases

• Price levels decrease, output decreases

• Price levels increase, output decreases

• Price levels increase, output increases

What is a demand shock?

• A sudden increase in Aggregate Supply

• A sudden increase in consumer savings

• A sudden shift in Aggregate Demand

• A sudden decrease in government spending

What economic condition is characterized by high inflation and stagnant growth?

• Deflation

• Stagflation

• Boom

• Recession

What does a Recessionary Gap indicate in the short run?

• Actual GDP is greater than potential GDP

• Actual GDP is less than potential GDP

• Actual GDP equals potential GDP

• Actual GDP is unrelated to potential GDP

How does the economy self-correct during a recession?

• Wages and resource prices decrease

• Wages and resource prices increase

• Government increases spending

• Government decreases taxes

Why might government intervention be necessary during a recession?

• Because wages adjust quickly

• Because wages are sticky and adjust slowly

• Because the economy never self-corrects

• Because resource prices are flexible

What happens to wages and resource prices in the long run during inflation?

• They decrease

• They increase

• They remain constant

• They fluctuate randomly

What is the long-run effect of an increase in Aggregate Demand?

• Return to full employment

• Permanent decrease in GDP

• Permanent increase in GDP

• Permanent inflation

What is the key to understanding economic self-correction?

• Wages fall during inflation

• Wages rise during recession

• Wages fall during recession

• Wages remain constant