AS and AD Flashcards
What are the 4 factors which effect a decision to invest?
- Rate of interest high or low?
- Business expectations confident?
- Rate of technical progress fast or slow?
- Rate of change of income high or low?
How is an AD curve drawn?
- Y axis= price level
- X axis= real output
- negative line
What is the accelerator effect?
A rise in economic growth due to rising consumption leading to more investment in the economy.
Happens during a recovery from a recession into a boom.
How can gov expenditure affect AD?
- increase in spending shifts to right
* decreasing, such as privatisation (sale of gov owned assets of private sector) shifts to left
What are the 3 factors of net exports (X-M) which affect AD?
- If AD increase or decrease in other countries
- If weak or strong exchange rate
- If UK economy recovery or recession
How is the AS curve drawn and why?
Keynesian
Slopes up from left to right because:
•lower sloping= as prices increase, so will output but plenty of labour available at existing wage rates
•steeper sloping= labour becomes more scarce so wages increases and prices rise
•vertical= reaches full employment
What does SRAS look like?
What 4 factors effects it?
Positively leaned line. B= business costs more/less? I= interest rates high/low? R= raw materials price high/low? T= tax to corporation high/low?
What does the LRAS look like?
What 5 factors can effect it?
Vertical line T= technology improvements/not? W=workers more/less? E=entrepreneurial culture yes/no? P=productivity high/low? C=capital equipment more/less?
What is the definition of LRAS?
The economy’s productive capacity.
What is a supply-side shock?
Something that will increase or decrease the costs e.g a large increase in the price of oil.
What is the multiplier effect?
An initial injection of government fiscal stimulus which causes spending to multiply.
E.g increase in gov spending or reduction in tax
