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AS Level Economics - Macro > Aggregate Demand and Supply > Flashcards

Aggregate Demand and Supply Flashcards

1
Q

What do models of aggregate demand and supply give?

A

They give economists another way to explain macroeconomic problems such as inflation, unemployment and growth.

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2
Q

What does aggregate demand simplify to?

A

Total demand and supply.

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3
Q

What is the definition of aggregate demand?

A

It is the total spending on domestic output at any given price level.

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4
Q

What does rising AD mean?

A

Growing.

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5
Q

What does falling AD mean?

A

Shrinking.

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6
Q

What are the four components of aggregate demand?

A

Consumption
Investment
Government Spending
Net Exports

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7
Q

How do you calculate net exports?

A

Exports - Imports

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8
Q

How do you calculate aggregate demand?

A

Consumption + Investment + Government Spending + (Net Exports - Imports)

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9
Q

Is aggregate demand normally positive or negative in the UK?

A

Negative, due to the UK having a negative balance of payments deficit.

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10
Q

What will changes in price level cause?

A

Movement along aggregate demand curve.

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11
Q

What can the shift by caused by?

A

fall in interest rates
cut in direct taxes
fall in exchange rate
advances in tech

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12
Q

What happened to AD during the credit crunch?

A

AD fell dramatically, bank of England cut interest rates to encourage spending.

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13
Q

What does ZIRP stand for?

A

Zero Interest Rate Policy

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14
Q

What is MPC?

A

Marginal Propensity to Consume - refers to how much extra income will be spent.

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15
Q

When may firms invest more?

A

Low Tax rate (corporation)
low interest rates
easy credit
high confidence

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16
Q

What is investment a component of?

A

Aggregate Demand

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17
Q

What is rising AD referred to as?

A

Actual growth.

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18
Q

What is the multiplier effect?

A

Any injection will go round more than once.

19
Q

What is marginal propensity?

A

Amount of any extra injection that is used for consumption.

20
Q

What is investment?

A

Spending by firms on capital.

21
Q

What was the point in ZIRP?

A

Cheap money, pushing up investments.

22
Q

What does accelerator theory argue?

A

The level of investment in new capital goods is induced by a change in the rate of growth of national income.
As growth increases, investment increases.

23
Q

What is falling government spending called?

A

Austerity.

24
Q

What are the fiscal implications of unemployment?

A

Government Spending more for State Exports.

25
Q

Why is the multiplier effect important?

A

It means that the government can use relatively small changes in spending or taxation to bring a larger change in national output.

26
Q

What will happen when the government runs a budget deficit?

A

National debt will rise.

27
Q

When will the AD curve shift right?

A

When the budget deficit changes.

28
Q

What increases consumption?

A

Increasing house prices
Increasing economic confidence.

29
Q

What increases investment?

A

Low interest rates.

30
Q

What increases exports?

A

More competitive and better at what we do.

31
Q

What is aggregate supply?

A

Total output that all producers in the economy are willing.

32
Q

What is Short Run Aggregate Supply

A

Output supplied in a time period when the level of capital is fixed.

33
Q

What is long run aggregate supply?

A

The output supplied when the economy is producing.

34
Q

What is the link between prices and firms supply?

A

Firms will be more willing to supply as prices rise.

35
Q

How do firms react to higher costs?

A

Firms are discouraged, less profit incentive.

36
Q

What do firms do when costs have fallen?

A

Firms chase profits.

37
Q

What is capital?

A

Goods that make other goods.

38
Q

What does capital expenditure simplify to?

A

Investment.

39
Q

What does the keynesian theory believre?

A

Markets fail, governments need to get involved.

40
Q

What does the free market view believe?

A

Markets work efficiently and should be left alone by governments.

41
Q

What does a right shift on a Keynesian graph show?

A

Increased maximum capacity, economic growth from yfe to yfe 1

42
Q

What is the best way to cause a right shift on Keynesian graph?

A

Investment.

43
Q

What does a right shift on the new classical curve mean?

A

Increased maximum capacity, economic growth from yfe to yfe 1.

44
Q

What do Keynesians believe that New Classicals dont?

A

We can be below Yfe in the long run.

AS Level Economics - Macro (10 decks)

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