ASA !!!!!!!!! Flashcards
What is SRAS ?
The relationship between planned national output and general price level
What are some factors which affect SRAS ?
Changes in the price of resources
Taxes , subsidies , regulations and import costs
Supply shocks
What is LRAS ?
The relationship between price level and real gdp
What are some factors which affect LRAS ?
Changes in the supply of labour
Changes in the efficiency of allocation
Changes in quality of factor inputs
Advances in technology
Improvements in technology
What are some factors which may shift the AD curve outwards ( expansion )
Changes to monetary policy
Changes to GOVT fiscal policy
Business and consumer confidence
What are some causes of a shift in AS outwards ? ( expansion )
Lower unit costs
What causes the AD curve to shift inwards ( contract )
Fall in exports
Cuts in GOVT spending
Decline in household wealth
Higher Interest rates
What are some causes of the LRAS curve shifting inwards ?
Outward migration of skilled workers
Decline in capital investment spending
Higher production costs
Effects of natural disasters
What is a negative output gap ?
When actual output is less than what the economy can produce at full capacity
What is a positive output gap ?
When actual output is more than full capacity of output
What is consumption ?
The act of using a resource
What may increase consumption ?
Increase in real incomes
Decrease in taxes + I rates
What may reduce consumption?
Increase in taxes , Interest rates
Changes in the economic climate
What is investment ?
Spending by firms on capital goods such as machinery + infrastructure
What may increase investment ?
Decrease prices of labour and capital
Increase in subsidies
What may decrease investment ?
Increase in the cost of labour + raw materials
Increase in Interest rates
What is the accelerator theory ?
A change in the level of investment in new capital goods induced by a change in national income / output .
Size of accelerator depends on the economy’s output ratio
What is the formula for Aggregate demand ?
C + I + G + ( X - M )
Consumption
Capital investment
GOVT spending
Net exports
What is savings ?
A decision by people to postpone consumption
What may increase saving ?
Decreases in taxes
Increase in interest rates for savers
What may decrease saving ?
Increased interest rates for lenders
Increased taxes and costs for raw materials
What is the savings ratio
Measures the actual or realised saving as a ratio of the total disposable income
Why is saving needed in an economy ?
Business survival during a recession
Used to finance takeovers
Funding capital investment
Buffers for consumers / pay off debts
Why may high saving be a problem for an economy ?
Not enough spending can create a poor flow of cash for businesses / the CF of income is reduced
