Aggregate Demand and Aggregate Supply Flashcards
What is injection
Money going into the circular flow, which comes from;
Investment
Government spending
Exports
What is withdrawal
Money that leaves the circular flow through;
Taxation
Savings
Imports
Explain the circular flow of income model
Households own wealth of the nation and supply these factors to firms. In return they recieve income and use this to buy goods and services. G&S are produced by firms and they hits FOP from households. These are used to produce G+D which are then sold back to households
In the circular flow of income models , state the leakages
Tax- Gov
savings- Banks
Importa- International trade
In the circular flow of income models , state the injections
Gov Spending- Gov
investments- Banks
Exports- International trade
What do we assume about the circular flow of income
Firms produce all goods,
FOP used are provided by households
They spend all their income and revenue
It is a closed economy
Aggregate demand
The overall want for g&s over a period of time
AD equation
C+I+G+(X-M)
What happens when injection is bigger than leakages and vice-versa
National output increases
Spending decreased
Define AS
The total level of G&S which domestic supplies are willing and able to produce at a given price level during a specific time period.
Components that shift SRAS
Wages
Business taxed
Oil prices
Raw materials
Import prices
Components that shift LRAS
(Productive efficiency)
High labour productivity
High quantity of labour
High investment
High infrastructure
New resource discoveries
Competition
What does positive output gap do
More productivity, faster GDP growth, inflationary pressure, consumption could slow down
What is negative output Gap
Less productivity, last GDP growth, elevates inflation, morr consumption
