7.2 AD and AS analysis

Question 1

What is short run AS

Answer 1

Any change in the costs of production

Question 2

What is long run AS?

Answer 2

Any change in the quantity, quality or productivity of factors of production

Question 3

What did Keynes believe that led to his model of the long-run AS?

Answer 3

Keynes believed the economy could settle in equilibrium below the full employment level of output.

Question 4

Would Keynesian economists advocate and support economic policies that improve and manage AS or AD?

Answer 4

If the economy was in recession Keynesian economists would focus attention on policies that stimulate the components of aggregate demand (C, I, G, X, M)

Question 5

Does a demand side shock move AD or AS?

Answer 5

Moves AD

Question 6

Does a supply side shock move AD or AS?

Answer 6

Moves AS

Question 7

Are shocks felt to a larger extent in open or closed economies?

Answer 7

Open like the UK