Aggregate Demand And Supply (ch10)

Question 0

What factors may lead to a shift in the demand curve?

Answer 0

Any NON PRICE LEVEL factors that can change any of the components of aggregate expenditure (C,I,G,NX) will shift the entire AD curve.

Question 1

Define aggregate demand

Answer 1

The total amount of spending in the economy from all of the different sectors.

Question 2

What is the Aggregate Supply Curve?

Answer 2

Is the relationship between total output of goods and services that producers are willing to produce and the general price level.

Question 3

What is the SRAS?

Answer 3

Shows the total planned output when prices in the economy can change but the prices and productivity of all factors of inputs (e.g. Wage rates, technology) remain constant.

Question 4

What is the LRAS?

Answer 4

LRAS shows the economy’s potential level of real GDP when all resources are fully employed (economy’s full employment level of output)

Question 5

What factors may result in a shift in the supply curve?

Answer 5

The main causes of a shift in the supply curve is a change in business costs, e.g.:
• changes in unit labour costs
• commodity prices 
• exchange rates 
• government taxation and subsidies
• price of imports

Question 6

What happens at the intersection of the AD, SRAS and LRAS?

Answer 6

It describes long run macroeconomic equilibrium where
• the level of real GDP is at the economy’s potential, given the current levels of resources and technology.
• There will be no upward pressure on prices.
• The model depicts the economy running at full employment.

Question 7

What is the position of the LRAS determined by?

Answer 7

The size of the economy’s workforce, quantity of capital and state of technology.

Question 8

Why does the potential level of output increase over time?

Answer 8

Because technology improves and both the labour force and capital stock increase.

Question 9

What is the point at which the AD and AS curve intersects?

Answer 9

It is short run equilibrium where it shows the equilibrium level of real GDP and price level.

Question 10

What is the position of the LRAS determined by?

Answer 10

The size of the economy’s workforce, quantity of capital and state of technology.

Question 11

What is the point at which the AD and AS curve intersects?

Answer 11

It is short run equilibrium where it shows the equilibrium level of real GDP and price level.