Effects of Price Level Changes

Front

Real-Balances Effect

Back

When price level falls, the purchasing power of existing financial balances rises, which can increase spending.

Front

Multiplier effect

Back

A component involved in changes in aggregate demand

Front

Real interest rates

Back

Cost of borrowing

Front

Business tax reduction

Back

Encourages more investment spending

Front

Net Export Spending

Back

Refers to the impact of national income abroad and exchange rates on aggregate demand (AD).

Front

Dollar Appreciation

Back

Makes US products more expensive and foreign products cheaper, leading to a decrease in net exports and aggregate demand.

Front

Long Run

Back

A time horizon in aggregate supply where there are no fixed costs and everything is variable.

Front

Aggregate Supply: Short Run

Back

Graph showing the short-run aggregate supply curve with price level on the vertical axis and real domestic output (GDP) on the horizontal axis.

Front

Effect of falling capital and land prices on AS

Back

AS shifts right.

Front

Effect of rising capital and land prices on AS

Back

AS shifts left.