aggregate demand and supply explanations Flashcards

(30 cards)

1
Q

economic growth influence on investment

A

increase in investment = increase in economic growth

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2
Q

business expectation + confidence influence on investment

A

firms only invest if confident will get a return on their investment and will expect to make greater profit

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3
Q

Keynes influence on investment

A

argued animal spirits or confidence couldn’t be measured, gut feeling on the part of those who have to make investment

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4
Q

demand for exports influence on investment

A

increase in investment = demand pull inflation in short-term leading to fall in exports but eventually will lead to increase in LRAS

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5
Q

interest rates influence on investment

A

fall In interest rates= cheaper for firms to borrow money = increased invest,et

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6
Q

access to credit influence on investment

A

most firms need to borrow to invest , so investment levels limited by availability of credit

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7
Q

gov and regulations influence on investment

A

gov can influence investment by reducing corporation tax or by removing regulatory barriers such as making planning permission easier

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8
Q

expansionary phase = when gov alters spending habits

A

confidence is high
gov receive higher tax revenues
less spending on benefits
leads to budget surplus

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9
Q

recessionary phase= opposite

A

confidence falls along with consumption
gov see tax revenue fall and benefit spending increases
leads to fall in budget surplus

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10
Q

after cycles completed either of 2 things can happen

A

if gov budget still in surplus = increase spend on public goods
if recessionary phase deep = gov needs to borrow money to balance budget

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11
Q

factors influencing trade balance

A

exchange rate between sterling and other currencies. affects prices of good and those produced overseas

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12
Q

SPICED

A

strengthening pound imports cheaper exports dearer

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13
Q

WPIDEC

A

weakening pound import dearer exports cheaper

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14
Q

AS diagram

A

economy at full capacity = LRAS line is vertical, total productive efficiency is achieved

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15
Q

quantity produced in an economy depends on

A

quantities of input of FOP employed, total amounts labour, capital

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16
Q

reasons for shift in SRAS

A
  • change in unit labour costs
  • changes to price of raw material
  • exchange rate fluctuations
  • taxation an dsubsidies
    change in level of international trade
  • changes in education and training

MAIN IDEAS = oil prices, exchange rates

17
Q

classical LRAS

A

classical economists believe markets will quickly correct themselves once pushed into disequilibrium - cuz wages flexible and can be lowered if needed - if all markets equilibrium can be no unemployed resources. therefore economy must be operating at full capacity on PPF boundary

18
Q

Keynesian LRASS

A

even in long run, unemployment persists cuz wages don’t fall when unemployment occurs - wages=sticky
when mass unemployment output can be increased without increased costs or prices
as economy nears full employment, higher output = higher prices.

19
Q

reasons for shift in LRAS

A
  • technological advancements
  • change in productivity
  • chang in education and skills
  • change in gov regulations
  • competition
    -immigration
20
Q

aggregate supply shocks

A

occur when : change in costs of raw materials and energy (oil prices key), change in exchange rates , change in tax rates

21
Q

effects of supply-side shocks

A

cause shift in SRAS curve.

22
Q

competition policy

A

gov promotes competition then firms forced to lower prices and increase quality of goods. to make a profit still firms need to increase efficienCY which increases production so LRAS increases

23
Q

EDUCATIONAL/SKILL CHANGES on AS

A

more skilled workforce, more employable , work quicker + efficiently = increases output, SRAS shifts right, education improves occupational mobility of labour, decreases structural unemployment ( people can switch jobs)

24
Q

gov regulation changes on AS

A

LRAS shifts right, increased size of workforce, encouraged employment, decrease inactivity (more resources in economy, more can be produced)

easier to set up businesses/invest/expand, increases company jobs,outpits = increase LRAS

BUT too high could cause shift left = increased costs + time to do tasks, reduces output

25
AD movements on curve due to
income effect substitution/trade effect interest rates effect
26
difference movements and shifts of AD
contraction or extension of demand are price level effects whereas shifts are independent to chnage of price level
27
determinants of consumption
income interest rates confidence asset prices wealth effect
28
influences on investment
animal spirits interest rates
29
influences on gov expenditure
trade cycle fiscal policy
30
influences on net trade
inflation levels protectionism disposable incomes ( home or abroad) exchange rates