ASAD

Question 1

Reason to explain why the aggregate demand curve is downward sloping

Answer 1

Wealth effect
As many of the assets in the economy are denominated in nominal values, the higher the price level, the lower the purchasing power of money. This reduces the wealth of the economy. As a result, households and firms reduce their consumption expenditure of all goods and services and the real output drops.

Interest rate effect
As the price level rises, households and firms demand more money to finance their transaction. Given the fixed supply of money, the interest rate would rise. An increase in interest rate would cause decline in investment and consumption and also the real output.

Net export effect: As the domestic price levels rise, foreign-made goods become relatively cheaper so the quantity demanded of imports increases. However, the rise in the domestic price level also means that domestic-made goods are relatively more expensive to foreign buyers so the quantity demanded exports decreases. When the volume of exports decrease and of imports increase, net exports will decrease, because net export are a component of real GDP, the demand for real GDP declines as net export decline.

Question 2

can tighten regulations on environmental protection increase LRAS

Answer 2

no

it may even hinder development

Question 3

can grant an amnesty to illegal immigrant increase LRAS

Answer 3

yes

labour supply increases

Question 4

Reason to explain why the sras curve is upward sloping

Answer 4

when the price level increases, the adjustment of input prices is imperfect due to the long term contracts of factor of production so the real cost of production will fall. Firms would thus use more factor inputs to produce larger output. Therefore, the SRAS curve is upward sloping ie a higher price level would result in a higher output level

Question 5

the effect of LRAS by increase education

Answer 5

improve labour productivity and thus increase aggregate output over time

Question 6

using fiscal reserves include in government expenditure?

Answer 6

no

2017 q13b

Question 7

property price increases

effect on AD?

Answer 7

AD increase as wealth increase

mock

Question 8

why aggregate output increase will lead to an increase in employment level

Answer 8

Given idle resources in the economy, derived demand for labour increase and so more labour would be used to produce the bigger output, implying an increase in employment level

Question 9

what is the disadvantage of increasing AD

Answer 9

In the long run , it would not create any effect on

output and employment. Inflation would even arise

Question 10

advantage of using market force to restore the economy to long run equilibrium than government intervention

Answer 10

It incurs a lower administrative cost
it will not affect the fiscal balance, while antiepidemic scheme introduced by the government will worsen the fiscal balance.

Question 11

disadvantage of using market force to restore the economy to long run equilibrium than government intervention

Answer 11

It takes a longer time for market forces to restore the economy to its long-run equilibrium,
while anti-epidemic scheme introduced by the government has a more instant impact on the
economy

Question 12

why the government prefer 保就業 more than 派錢

Answer 12

The wage subsidies can lower the production cost and prevent close down of firms. Firms could recover their production capacity quickly and output level will increase back to its long-run equilibrium in a shorter period of time after the epidemic.

Question 13

why education can increase the income

Answer 13

education can increase human capital and raise labour productivity.