aggregate demand and supply explanations

Question 1

economic growth influence on investment

Answer 1

increase in investment = increase in economic growth

Question 2

business expectation + confidence influence on investment

Answer 2

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

Question 3

Keynes influence on investment

Answer 3

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

Question 4

demand for exports influence on investment

Answer 4

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

Question 5

interest rates influence on investment

Answer 5

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

Question 6

access to credit influence on investment

Answer 6

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

Question 7

gov and regulations influence on investment

Answer 7

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

Question 8

expansionary phase = when gov alters spending habits

Answer 8

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

Question 9

recessionary phase= opposite

Answer 9

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

Question 10

after cycles completed either of 2 things can happen

Answer 10

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

Question 11

factors influencing trade balance

Answer 11

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

Question 12

SPICED

Answer 12

strengthening pound imports cheaper exports dearer

Question 13

WPIDEC

Answer 13

weakening pound import dearer exports cheaper

Question 14

AS diagram

Answer 14

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

Question 15

quantity produced in an economy depends on

Answer 15

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

Question 16

reasons for shift in SRAS

Answer 16

• 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

Question 17

classical LRAS

Answer 17

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

Question 18

Keynesian LRASS

Answer 18

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.

Question 19

reasons for shift in LRAS

Answer 19

• technological advancements
• change in productivity
• chang in education and skills
• change in gov regulations
• competition

Question 20

aggregate supply shocks

Answer 20

occur when : sudden rise in oil prices or essential inputs, invention/diffusion of a new product tech, major change In movement of migrant workers

Question 21

effects of supply-side shocks

Answer 21

cause shift in SRAS curve.