Economic Growth, AD and AS

Question 1

Aggregate demand

Answer 1

Total demand for goods and services in an economy in a given period of time, C+I+G+(X-M)

Question 2

Demand-side shocks

Answer 2

• Economics downturn in major trading partners.
• Unexpected rises in tax or cuts to welfare benefits.
• Financial crisis causing banks lending/credit to fall.
• Larger than expected rise in unemployment rates.

Question 3

Supply-side shocks

Answer 3

• Steep rise in oil and gas prices or other commodities.
• Political turmoil/strikes.
• Natural disaster causes a sharp fall in production.
• Unexpected breakthroughs in production technology.

Question 4

Accelerator effect

Answer 4

When an increase in national income (GDP) leads to a more than proportionate increase in capital investment spending.

Question 5

Multiplier effect

Answer 5

When an increase in aggregate demand leads to a more than proportionate increase in R.GDP

Question 6

National Income

Answer 6

Total income received by all factors of production in an economy over a given period of time.

Question 7

GNI

Answer 7

Gross National Income = GDP + net income from oversees investment and remitances

Question 8

GDP

Answer 8

Gross domestic product measures the total value of all goods and services produced in a country, at a given period in time.

Question 9

How to measure GDP

Answer 9

• Output method (RNO, value of all good and services produced in an economy in a year)
• Income method (RNI, total of all factor incomes in an economy in a year)
• Expenditure method (AD, total spending in an economy in a year, C+I+G+(X-M))

Question 10

Green GDP =

Answer 10

GDP - environmental costs

Question 11

1-MPS =

Answer 11

Marginal Propensity to Withdraw (MPS+MPM+MPT)