lesson 6 Flashcards
what is macroeconomic equilibrium?
when AD=AS
if there is increased consumption what does that show about consumers?
they are confident
if there is increased savings what does that show about consumers?
they are worried
what happens in terms of the new classicalist model if we are out of equilibrium?
We can only be out of equilibrium in the short run and we would be pushed return to Yfe as this cannot last long and will push costs up shift the SRAS curve to the left
what happens to SRAS if there is rising confidence in the economy?
SRAS will shift right
what happens to SRAS if there is rising productivity?
SRAS shifts right
what happens to SRAS if there is an economic shock?
AD will decrease and SRAS shifts left
what happens to SRAS if there are rising output costs?
SRAS shifts left
what happens to AD if there is quantitate easing?
AD shifts right
what happens to SRAS if there is tightening credit?
SRAS shifts left
what is quantitative easing?
when banks are encouraged to lend
explain why rising interest rates would affect aggregate demand.
increasing interest rates means overall higher prices for goods and services
people may no longer be able to afford specific products causing them to switch to inferior versions of the product
this means consumer spending decreases their spending power has diminished
effecting consumption by decreasing it
so AD falls
describe what spare capacity is in an economy.
when the businesses are not making full use of their capacity and there are unused factors of production
how to manage steady growth during a boom?
manage inflation rates as confidence is very high
European workers who work for lower wages
discuss ways the government may encourage growth in the uk economy.
expansionary fiscal policies as they create actual growth in the short run.
expansionary monetary policies as this lowers interest rates which raises confidence increasing overall consumption/ spending by consumers.
