AD/AS model

Question 1

what is the equation for aggregate demand

Answer 1

C + I + G + ( X - M )

Question 2

explain 2 different factors affecting level of consumption

Answer 2

asset prices - if the price of peoples houses, shares and bonds increases then they have a greater MPC. they have a greater return on investment thus are more willing to spend
disposable income - people have more disposable income from lower income tax meaning they have greater MPC and less MPS

Question 3

what are the 4 government objectives

Answer 3

• achieve full employment
• achieve economic growth
• achieve a balance of payments
• limit inflation to 2%

Question 4

what are the two definitions of full employment

Answer 4

William Beverages definition - when employment is at 97% of total capacity

academic definition - when there is an equilibrium between the number of jobs being supplied and the number of jobs being demanded

Question 5

CPI vs RPI

Answer 5

CPI - commonly used

Question 6

what are the factors that affect the short run aggregate supply

Answer 6

factors that increase cost of production: oil prices
prices of natural raw material
wages
taxes (lack of subsidy)
price of imports

Question 7

what are the factors that affect LRAS

Answer 7

quantity, quality, land and labour
productive efficiency