AD AS SOL

Question 1

AD-led growth type ?

Answer 1

Actual growth assuming economy initially operating with spare capacity

Question 2

Explain AD-led growth ?

Answer 2

• Explain root cause of AD rise
• multiplier process
  :
  Unplanned fall in inventorie causing firms to increase production, by hiring more FOP lily labour.
  NY and hence HH income rises leading to increased induced consumption as well as withdrawals in the form of acting’s, taxes, and import spendings.
  Trigger another round of unplanned fall in inventories in other unducstires. Prices repeats until equilibrium is reached when total injections equal to total withdrawals.
  There is a multiplie rise in real GDP, leading to actual growth assuming that economy inititially has spare capacity

Question 4

What affects the extent of multiplier process ?

Question 5

AS-led growth type

Answer 5

1. Actual growth
2. Potential growth

Question 6

Explain AS-led potential growth

Question 7

Explain AS-led actual growth

Answer 7

• Explain root cause of increase in AS
  :
  Horizontal — UCOP fall
  Vertical — increase in quality and quantity of FOP
• Shift in AS curve
• why real GDP rise due to WII effect
  :
  GPL fall, downward miovemnt along AD curve due to WII effect
  Weather effect: AS GPL fall real value of HH wealth increases, increasing purchasing power. HH have higher ability to consumer g&s at lower GPL hence increasing consumption and production, increasing real GDP