2.2 Flashcards
what shifts SRAS curve
mainly price level and production costs are main factors of SRAS
-productivity
- Business taxes (Corporation tax, VAT)
- Wages- if wages increase it increases a firms cost of production and therefore shifts SRAS to the left.
- Raw materials/commodity prices. Oil, gas, coal
- Import prices (SPICED, WIDEC)
Strong exchange rate = Import prices are low (cheap)= Cost of production is lower = SRAS right
However.. If the company mainly relies on exports at a strong exchange rate we’ll get less for our money (exports are more expensive)
What shifts LRAS curve
Quality of labour - Labour productivity increases = LRAS will shift right, could be incentivised by higher salaries
Specialisation, Managerial economies of scale - when firms hire specialist managers which reduces costs/ boosts productivity
Competition If there is more competition, it forces firms to compete on a non-price basis Increasing productivity
Marketing/adverts shifts LRAS right
Quantity of labour Immigration/ state of economy Increase in population = increase in LRAS as there are more workers however AD will also this could all result in hyper inflation
Increase in investment in technology / research and devlopement = increase LRAS shift it to the right
Government can provide subsidies to firms = this will increase investment
Infrastructure
- ports, airports, roads, buildings/offices warehouses this increases operations efficiency,Reduces costs to operate and to transport goods this also attracts FDI which in turn would shift LRAS to right the government could increase spending on education in the economy. By investing in education, human capital will increase, entr will increase = increase LRAS (due to productivity and efficiency) (more automation)
however… There is an opportunity cost
things that shift AD
C+I+G(X-M)
Consumption:
- Low interest rates = cost of borrowing is lower = Marginal propensity to consume increase = a right shift in AD from ad to ad1
-Inflation (movement along the curve)
-Level of disposable income If income tax decreases = more disposable income= right shift in demand
- Consumer confidence = Job prospects
- State of the economy = in a recession
-Lower interest borrow more = invest more
-a lot of spare capacity in a company. there will be little to no increase in investment because they have the spare capacity to increase productivity
-Exports and imports, Real disposable income earned abroad= Marginal propensity to import increases = UK exports will increase =Our (UKs) AD increases
what affects supply
FOP
multiplier effect
A change in one of the components of aggregate demand (AD) can lead to a multiplied final change in the equilibrium level of GDP
The multiplier effect comes about because injections of new demand for goods and services into the circular flow of income stimulate further rounds of spending - because “one person’s spending is another’s income”
This leads to a bigger final effect on the level of national output and also total employment in the labour market
multiplier eq
1/ 1- mps
accelerator effect
changes in investment can be linked directly to changes in the rate of GDP growth
determinants of saving
income levels, interest rates, consumer confidence, and future expectations.
difference between saving and investment
Investment is spending by businesses and government on real assets and capital goods that are productive. Saving is simply unspent income.
what does national income measure
the monetary value of the flow of output of goods and services produced in an economy over a period of time.
difference between real income and nominal income
nominal income is the total amount of money a person earns in a given period of time, while real income is the nominal income adjusted for inflation.
how can you indicate economic growth
through real national income
GDP= income+ output+ expenditure
GDP= income+ output+ expenditure
difference between withdrawals (leakages) and injections
withdrawals are how incomes leave the economy through taxation (T), saving (S) and imports (M)
whereas injections are ways in which expenditure can occur in an economy through investment (I), government spending (G) and exports (X)
Gdp methods
output income and expenditure
