2) Changes in AD/AS affecting macroeconomic indicators -MMT

Question 1

if AD increases Ad curve will…

Answer 1

shift to the right

Question 2

what causes an AD shift right?

Answer 2

could be caused by any change in the components of AD

Question 3

what are the most commonly used examples for shifts in AD to the right?

Answer 3

1) are a deliberate increase in G (or reduction in T)
2) also a decrease in IR (interest rates) which should increase I (due to higher business confidence) and C (due to high consumer confidence)

Question 4

what does shifting AD to the right cause? (3 things)

Answer 4

1) an increase in real GDP
2) economic growth possibly reducing any negative output gap
3) increasing employment levels but also leading to an increase in the Price Level (inflation)

Question 5

if there are cuts in G, what will happen to the AD curve?

Answer 5

shift left and have opposite effects

Question 6

If AS increase the SRAS curve will shift to…

Answer 6

the right

Question 7

what could a shift right in SRAS be caused by?

Answer 7

a decrease in the level of costs facing businesses

Question 8

what is an example of a decrease in the level of costs? (causing a shift right in SRAS)

Answer 8

eg might be a decrease in the cost of fuel across the economy, lower wages, lower taxation, or higher government subsidies

Question 9

what is the effect of an AS curve shifting right?

Answer 9

increase in Y/RGDP (economic growth), higher employment levels and a lower price level

(left would be an opposite impact: negative growth, more unemployment and higher price level)

Question 10

What happens if LRAS increases?

Answer 10

LRAS would shift to the right

Question 11

When would LRAS shift to the right?

Answer 11

This could occur when there is an increase in the quantity of factors of production in an economy (eg more Labour due to immigration), however it is far better to talk about improvements in the factors of production (eg making better use of land, educating and training workers to a higher standard, better capital through new technology, or better infrastructure and better conditions for enterprise/less regulation)

Question 12

Analysis of LRAS shifting right

Answer 12

If LRAS shifted right, there would be a higher YFE, long run economic growth, more employment and a lower price level

Question 13

Is LRAS shifting right good?

Answer 13

This is desirable for all countries

Question 14

Why could LRAS shift left?

Answer 14

Eg in Ukraine 2022, masses of land, Labour and capital lost

Question 15

Any increase in…,… or … should lead to economic growth, and should increase employment

Answer 15

AD, SRAS or LRAS

Question 16

Changes on the supply side are often considered to be more… than changes on the demand side

Answer 16

Sustainable

Question 17

Why is supply more sustainable?

Answer 17

1) Increases in AS should reduce PL whilst increases in AD might increase PL meaning that the real value of any increase is diminished or lost

Question 18

What determines economic growth/ increase in employment?

Answer 18

1)It also depends on the size of any increase eg 1% increase in AD has a far smaller impact than a 5% increase
2) depends on ceteris paribus, eg if an increase in AD coincides with a decrease in AS then there mayb be no improvements to growth or employment