ADAS

Question 1

Define AS

Answer 1

Total output by all firms in an economy

Question 2

When aggregate supply decreases, which direction does the AS curve shift

Answer 2

Down

Question 3

What is a change in productive capacity due to

Answer 3

Quantity, quality of resources, level of technology

Question 4

What does productive capacity mean, what does a change in product capacity do to the AS curve

Answer 4

Ability of economy to produce goods and services
Inward/ outward shift of AS curve

Question 5

If wages increase faster than an increase in productivity, what direction does AS curve move, what is the type of inflation that occurs?

Answer 5

Downwards, cost push inflation

Question 6

Why does cost push inflation result in lower real GDP?

Answer 6

Cost push inflation → GPL increases → quantity demanded of consumers decreases → real GDP decreases

Question 7

How does an increase in wages over productivity affect bot (2)

Answer 7

Aggregate supply declares, GPL increases, price of exports increases, quantity demanded for exports decreases (consider PED)→ total revenue from exports decreases → bot deficit

Question 9

Define aggregate supply

Answer 9

Total value of output of goods and services that domestic firms as a whole produce and sell at EACH general price level

Question 10

What happens to a change in RNY on price in the Keynesian range (6 step)

Answer 10

• real national output much lower than full employment level
• abundance of unutilised and under utilised resources
• spare capacity
• rise in agg demand, producers would be able to draw on abundance of spare capacity to increase output production without increasing price of goods and services
• no pressure on GPL to increase
• no increase in GPL