Aggregate demand and aggregate supply Flashcards

1
Q

Why is the AD curve downward sloping?

A

When prices fall consumers experience a wealth effect, they feel better off because their incomes will buy more goods or services, leading to more consumption

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What causes the AD curve to shift?

A

C I G X M

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What factors affect the decision to invest? (3)

A

The rate of interest
Expectations
Technical progress

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How do interest rates cause greater investment? Why?

A

A fall in interest rates = more investment

Because borrowing will be cheaper

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How do expectations cause greater investment? Why?

A

Positive expectations = more investment

Because businesses will expect more sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How does technical progress cause greater investment?

A

Better equipment = more investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the accelerator effect?

A

The relation between the change in new investment and the rate of change of national income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is privatisation?

A

Sale of government owned assets to the private sector

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

If EU economies are fast growing, how will this affect the demand for UK exports? What will happen to AD?

A

UK exports will increase, AD will shift to the right

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What happens to UK exports, if the value of the pound depreciates against the euro? What happens to AD?

A

WPIDEC, exports will increase

AD will shift right

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What happens to UK exports, if the value of the pound appreciates against the euro? What happens to AD?

A

SPICED, exports will decrease

AD will shift left

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

If the UK economy is growing and incomes are rising, what will happen to UK imports? What happens to AD?

A

Imports will increase

AD will shift to the left

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What does the AS curve show us?

A

The total output that the economy can produce using available factors of production at a given price level

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the factors that affect the SRAS curve? (1)

A

Any factor that changes the firms costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the factors that affect the SRAS curve? (3)

A

Money wages
Price of raw materials
Corporation tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is long-run AS?

A

The economy’s productive potential

17
Q

Why does the AS curve become vertical?

A

All factors of production are fully employed and the productive capacity has been reached

18
Q

What is the natural rate of unemployment?

A

The rate of unemployment that is consistent with a stable rate of inflation

19
Q

What are the factors that influence the LRAS curve? (5) (CTAPP)

A
Capital equipment
Technology 
Attitudes 
Policies 
Productivity
20
Q

How does capital equipment affect the LRAS curve?

A

Increase in capital equipment = rightward shift in the LRAS curve

21
Q

How does technology affect the LRAS curve? Why?

A

Better technology = rightward shift in the LRAS curve

More productive

22
Q

How does attitudes affect the LRAS curve?

A

Better attitude = more likely to open firm = rightward shift in the LRAS curve

23
Q

How do policies affect the LRAS curve?

A

Policies that persuade a larger proportion of the labour force will reduce the natural rate of unemployment and shift the LRAS curve to the right

24
Q

How does productivity affect the LRAS curve?

A

Increase productivity = increase in output over time = rightward shift in the LRAS curve

25
Q

Who are the monetary policy committee?

A

A committee of economists and central bankers who meet monthly and decide whether or not to change the rate of interest

26
Q

What are supply-side shocks?

A

Something that will increase or reduce the costs, hence the supply-side of all firms in the economy

27
Q

What does an increase in the LRAS curve represent? (2)

A

An increase in economic growth

A shift in the PPF