Aggregate Supply Flashcards

1
Q

Aggregate Supply def

A

Level of real GDP produces at different price levels in a given year

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2
Q

2 views of AS +. slope

A
  • Keynesian
    Horizontal AS curve

-Classical
Vertical AS curve

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3
Q

Keynesian belief + when most relevant

A

Full unemployment cannot be achieved
Prices are fixed and rigid
Government intervention to avoid depression or recession
“demand creates its own supply”
-Most relevant during recessions

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4
Q

Keynesian belief of what happens to AS curve in a recession

A

Horizontal AS curve because wages are fixed so
-Price levels are constant
-real GDP and employment rise

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5
Q

Classical belief + when most relevant

A

Recessions are natural
Prices are flexible
Full employment naturally restored, no government intervention needed
“Supply creates its own demand”
-most relevant during full employment

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6
Q

Classical belief of what happens during a recession

A

Prices and wages adjust to restore economy to full employment

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7
Q

Intermediate range def

A

When economy is moving toward or away from recessions and periods of full employment.

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8
Q

What happens during intermediate ranges

A

Inventories and employment are shrinking or expanding
AS curve elastic

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9
Q

Macroeconomic equilibrium def

A

AS and AD intersect

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10
Q

What happens when AD increase for Keynesian range

A

Price levels are constant, real GDP expands

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11
Q

What happens when AD increase for intermediate range

A

Price levels increase, real GDP increase

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12
Q

What happens when AD increase for classical range

A

Increase AD cause inflation

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12
Q

What happens when AD increase for classical range

A

Increase AD cause inflation

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13
Q

Non-Price determents of AS (5) + what do they affect

A

-resource prices
-tech change
-taxes
-subsidies
-regulations

They affect production cost

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14
Q

Lower production cost on AS curve + EX

A

Increase GDP supply, rightward shift
EX Lower taxes, lower oil prices, lower G regulations

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15
Q

Higher production cost on AS curve+ EX

A

Lower GDP supply, leftward shift
EX Higher taxes, higher G regulations, lower wages

16
Q

A leftward shift in AD curve can cause a

17
Q

The business cycle is a result of …

A

shifts in the AD and AS curves

18
Q

A rightward shift in AD curve can cause

A

real GDP and employment to rise

19
Q

A leftward shift in AS curve can cause a

20
Q

A rightward shift in AS can cause an

21
Q

Classical approach to a downturn in the business cycle is for the gov to do nothing

A

True. Recessions naturally curve themselves and the systems’s automatic stabilisers natural restores full employment

22
Q

Ex of what can shift AD to the right

A

Consumers become optimistic about the future

24
For Keynesian belief, if the equilibrium real GDP is below full employment level, increase in AD results in
Price remains constant Real GDP rises
25
In intermediate range if increase AD, what happens
Increase real GDP and price levels