AD/AS anysis

Question 1

Inflation

Answer 1

Persistent rise in the price level

Question 2

Equilibrium

Answer 2

AD = AS

Question 3

Aggregate demand

Answer 3

Total planned spending on real output proceeded within the economy

Question 4

Aggregate supply

Answer 4

The level of real national output that producers are prepared to supply at different average price levels

Question 5

Exchange rate

Answer 5

External price of a currency measured against another currency

Question 6

SRAS

Answer 6

The quantity of real output that a business plans to produce and sell at different price levels when total productive capacity is fixed

Question 7

LRAS

Answer 7

The real output that can be supplied when the economy is on its production possibility frontier. All available factors of production are employed.

Question 8

Output gaps

Answer 8

The difference between the current level of real GDP and the potential output of the economy

Question 9

Positive output gap

Answer 9

Occurs when the current level of real GDP is above the potential output of the economy

Question 10

Negative output gap

Answer 10

Occurs when the current level of real GDP is below the potential output of the economy

Question 11

Economic shock

Answer 11

An unexpected event hitting the economy which can affect the supply side or the demand side

Question 12

Accelerator

Answer 12

A change in the level of investment in new capital goods is induced by a change in the rate of growth of AD

Question 13

Marginal propensity to consume

Answer 13

Multiplier = 1 / (1-mpc)

Question 14

Multiplier equation

Answer 14

Change in national income / initial change in government spending