2.4.3 - Equilibrium Real National Output

Question 1

When does equilibrium national income occur

Answer 1

• when injections = leakages
• when AD = AS

Question 2

AD/AS diagrams - impact of an increase in aggregate demand on price level and real GDP

Answer 2

• increase in AD causes expansion along the AS curve and a higher equilibrium level of national output
• outward shift of AD causes a cyclical rise in output and employment

Question 3

AD/AS diagrams - impact of a fall in aggregate demand on price level and real GDP

Answer 3

• decrease in AD causes contraction along the AS curve and a lower equilibrium level of national output
• the general price level should fall

Question 4

AD/AS diagrams - impact of an increase in aggregate supply on equilibrium price level and real GDP

Answer 4

• increase in AS causes expansion along the AD curve and a higher equilibrium level of national output
• outward shift of aggregate supply should help to increase business profits

Question 5

AD/AS diagrams - impact of a fall in aggregate supply on equilibrium price level and real GDP

Answer 5

• decrease in AS causes a contraction along AD curve and a lower equilibrium of national output
• inward shift of aggregate supply will lead to lower business profits
• general price level is likely to rise

Question 6

What can cause an inward shit of LRAS

Answer 6

• damaging effects of national disasters
• destruction / loss of factor inputs
• large scale labour migration
• trend declines in productivity
• ageing population