## Definitions Aggregate Demand = the toal quantity of aggregate output, or real GDP, that all buyers in an economy want to buy at different possible price levels GDP -- the (market) value of all (final) goods (and services) (or output) produced within an economy/country (over a period of time). Economic growth -- an increase in an economy's real output (real GDP) Inflation -- A continuing (or sustained) increase in the general price level. Disinflation -- a fall in the rate of infl ation consumer / business confidence price of currency of country A increases (appreciation) --> fall in export and rise in imports --> the AD of a shifts to the left (decreases) - Disadvantages of high inflation - loss of pruchasing power - uncertainty & reduced investments (harm economic growth) high interest rate - benefits - control inflation - encourage saving - downsides - discourage investment & consumer spending --> reduced economic growth - higher unemployment low interest rate - stimulates consumption & investment - risk demand-pull inflation Demand side policy Fiscal -- The use of government spending and taxation to influence aggregate demand and economic activity. Monetary -- The use of interest rates and the money supply, controlled by the central bank, to influence aggregate demand and economic activity.