lesson 5 Flashcards
a rightward shift in AD
what will increase consumption?
what will increase investment?
what will increase government spending?
what will increase net exports?
low interest rates will increase consumption
because there are low interest rates there is confidence increasing investment
governments can choose whether they increase their spending as this is digressionary
a weakening pound would increase net exports as it would make the firms more competitive as well as increased productivity as we would have more output to export
a leftward shift in AD
what will decrease consumption?
what will decrease investment?
what will decrease government spending?
what will decrease net exports?
consumption would decrease as there is less confidence so people tend to spend less
investment also decreases as people are less confident so there is a fall in sales and an increase in corporation tax
governments can choose whether they decrease their spending as this is digressionary
net exports will decrease through a strengthening pound as this makes us less competitive on an international scale but also through a decrease in productivity as output is not being produced
what is aggregate supply?
total domestic supply/ the total output of all the producers in the economy
what is LRAS and SRAS based on that’s not time?
its a capacity concept
what is SRAS?
its our output when we
have at least one fixed factor and we use up spare capacity. we are in the short run as long as there is one fixed factor
what is LRAS?
the output supplied when the economy is producing at its productive potential and there is no fixed factor
productive capacity can change
what are the two LRAS theories?
the keynesian theory: market failure is common and government intervention is necessary
the new classicalist approach: markets work efficiently, can clear themselves and should be left alone as much as possible
what are some things that will help increase LRAS?
Investment in capital goods
new technology
entrepreneurial culture
policies that encourages workers to work
what shift SRAS will take place due to an increase in the price of oil?
shifts left
what shift SRAS will take place due to a rise in wages matched by an increase in productivity?
stays the same
what shift SRAS will take place due to a fall in corporation tax?
shifts right
what shift SRAS will take place due to a fall in interest rates?
shifts right
what shift SRAS will take place due to an increase in raw materials?
shifts left
the natural rate of unemployment is found when…
the economy is at full capacity
what do the new classicalists argue about the long run which opposes the keynesian model?
we cannot be below Yfe and that there are no unused resources in the long run
