AS/AD Flashcards

1
Q

An Increase in Aggregate Supply could be because of:

A
  • A decreased cost of raw materials (power, rent, resources, etc)
  • An investment in human capital (more training, education) leading to an increase in the productivity of workers
  • An investment in human capital (more training, education) leading to an increase in productivity of workers.
  • A decrease in indirect tax such as GST
  • An appreciation of the exchange rate that leads to a decrease in the cost of imported raw materials e.g. oil etc.
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2
Q

An increase in Aggregate Demand could be because of:

A
  • An increase in consumer spending/decrease in savings
  • An increase in investment
  • An increase in government spending
  • An increase in export receipts
  • An increase in income or decrease in income tax
  • An increase in transfer payments
  • A decrease in interest rates which will lead to an increase in investment and consumption and less savings
  • An increase in money supply
  • Inflationary expectations (People expect prices to rise and so buy now).
  • An increase in optimism about the future e.g. increase in house prices.
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3
Q

A Boom Period is:

A

A period of high economic growth in an economy. A percentage increase in Real GDP measures this. During a Boom, the economy is producing close to or on the PPF and is near full employment.

A recession occurs if there are two quarters (6 months) of negative growth. In a recession, the economy is producing inside the PPF and there is a lot of unemployment.

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