Aggregate Demand & Supply

Question 1

Inflation

Answer 1

A sustained rise in the general price level of a nation

Question 2

Disinflation

Answer 2

A decrease in the rate of inflation

Question 3

Deflation

Answer 3

A decrease in the general price level of a nation

Question 4

Ad formula

Answer 4

Ad+ C+I+G+(X-M)

Question 5

Answering format (Demand)

Answer 5

S= Situation
C= Component (Consumption spending, Investment spending, Government spending, net export)
R= Reason/ explanation
A= Affected (Ad1 to Ad2)
P= Prices level (PL1 to PL2)
P= Production (real GDP) (Y1 to Y2)
Demand pull (AD)

Question 6

Answering format (Supply)

Answer 6

Situation
What caused the shift and explain
Revenue unchanged, profit margin, profitability
How producers would react (increasing prices on output to maintain profit margins)
quantity supplied at each and every price level
Affected (AS 1 to AS2)
Prices level (PL1 to PL2)
Production (real GDP) (Y1 to Y2)
Cost-push inflation

Question 7

Reasons for aggregate supply shift

Answer 7

Cost of production
Cost of imported raw materials
indirect taxes
productivity 
interest rates in nz

Question 8

Consumer spending

Answer 8

Transfer payments (increased)
Consumer confidence 
Disposable income (increased)
Income tax (reduced)
Interest rates (decreases)
Price expectations

Question 9

Investment spending

Answer 9

Producers spending on capital goods
Business confidence
Interest rates (decrease)
Government policy (budget, policy on trade)

Question 10

Government spending

Answer 10

Spending by the govt, their budget (roads, education ,health care etc)
Transfer payements towards households so they can spend money

Question 11

Net exports

Answer 11

Foreign Tourist are export receipts (foreign currency)
Import payments
Tariffs (tax on imported goods to protect local industry)

Question 12

Appreciation

Answer 12

An increase in the price (dollar value)

Question 13

Depreciation

Answer 13

A decrease in the price (dollar value

Question 14

Imports Appreciation (NZ dollar)

Answer 14

Imports are relatively cheaper
The price of imported goods decreases, causing consumers’ quantity demand to increase
Crowds out (struggle) local producers of similar products
M increases
(X-M) decreases
AD decreases (demand for domestic goods and services)

Question 15

Imports Depreciation (NZ dollar)

Answer 15

Imports are relatively more expensive
The price of imported goods increases, causing consumers’ quantity demand to decrease
Local producers and goods (similar) are better off as their goods are relatively cheaper.
M decreases

Question 16

Exports Appreciation (foreign dollar)

Answer 16

Exports are relatively more expensive
The price of imported goods increases, causing consumers’ quantity demand to decrease
Local producers and goos (similar) are better off as their goods are relatively cheaper.
X decreases
(X-M)
Ad increase (demand for goods and services domestic)