L7 Aggregate Supply

Question 1

Types of AS

Answer 1

Long run - MWR inc in step with PL inc
GDP maintain at pGDP
Short run - MWR (and other factors of prodn) no change when PL change, as WR infrequently negotiated

Question 2

pGDP effects AS

Answer 2

inc labour or productivity
rGDP vs PL draw ples
LAS & SAS shift right

Question 3

MWR effects AS

Answer 3

MWR inc SAS shift left
LAS stay
Why?
Departure from full employment
Change in inflation expectations

Question 4

AD means

Answer 4

Quantity of rGDP demanded Y
That ppl plan to buy

Affected by:
PL
Expectations
Fiscal Policy & Monetary Policy
State of world economy

Question 5

PL vs AD

Answer 5

Wealth effect: when inflation, ppl have less real wealth / buying power, save more nominal assets
consumption dec

Sub effect 1: when inflation, bank less money so inc interest to reduce loan. ppl consume & invest less

Sub effect 2: when inflation, domestic goods price inc, so ppl buy foreign goods; net export dec

= rGDP demand dec

Question 6

Expectations vs AD

Answer 6

Future income inc ppl will consume more today
Inflation same as today’s goods are cheaper
Profit will invest more

Question 7

FP vs AD

Answer 7

Tax cut will increase disposable income so con inc

Govt exp inc AD inc

Question 8

MP vs AD

Answer 8

Low interest C & I inc AD inc

More money quantity, buying power inc AD inc

Question 9

State of world Economy vs AD

Answer 9

When foreign exchange dec, domestic cheaper so net exp inc AD inc
Foreign income inc, con, demand inc net exp inc AD inc

Question 10

Aggregate supply?

Answer 10

Amount of rGDP firms plan to produce (supplied).
Affected by pGDP & MWR
rGDP vs PL