The change in consumption associated with a given change in income.

The output of goods and services (real GDP) demanded at different price levels.

The long-run aggregate supply curve is vertical at full employment because the economy has reached its capacity to produce.

The short-run aggregate supply curve is positively sloped because many input costs are slow to change (sticky) in the short run.

The change in saving associated with a given change in income.

Occurs at the intersection of the short-run aggregate supply and aggregate demand curves. At this output level, there are no net pressures for the economy to expand or contract.

Results when a supply shock hits the economy, reducing short-run aggregate supply, and thus reducing output and increasing the price level.

The real GDP that firms will produce at varying price levels. The aggregate supply curve is positively sloped in the short run but vertical in the long run.

Households usually hold some of their wealth in financial assets such as savings accounts, bonds, and cash, and a rising aggregate price level means that the purchasing power of this monetary wealth declines, reducing output demanded.

Spending changes alter equilibrium income by the spending change times the multiplier. One person’s spending becomes another’s income, and that second person spends some (the MPC), which becomes income for another person, and so on, until income has changed by 1/(1 − MPC) = 1/MPS. The multiplier operates in both directions.

Results when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises.