Aggregate Demand (AD) and Aggregate Supply (AS)

Question 1

Aggregate Demand (AD)

Answer 1

The total spending on real national output that all economic agents in the economy wish to undertake
AD = C + I + G + ( X - M)

Question 2

Why does the AD curve slope downwards

Answer 2

Interest efect
Substitution effect
Value of Cash

Question 3

Demand side shocks

Answer 3

Capital/ investment boom
Rapid improvement/ decline in other countries
stock market

Question 4

Aggregate supply (SRAS)

Answer 4

planned output when Prices can change but the prices and productivity of all factor inputs are constant

Question 5

LRAS

Answer 5

When P’s and average wage rates can change and measures country’s productive potential.

Question 6

Shifts in SRAS

Answer 6

Change in unit labour costs
Change in Commodity Prices
G Taxes + Subsidies

Question 7

Factors affect LRAS

Answer 7

Availability + Quality of factor inputs
State of production and technology
Time period, Quantity and Quality of labour, capital stock, the availability of natural resources

Question 8

Shirt to the right in LRAS

Answer 8

Increase in Labour Supply
Supply side policies
Occupation and geographical mobilities, expanding capital stock
Business expectation; incentivisation: Enterprice and R+D
Innocation

Question 9

Supply Side shocks

Answer 9

Natural disasters

oil and steel shocks/booms