Links within the chain of reasoning

Question 1

Link between AD and PL

Answer 1

An increase in AD causes an increase in price level which brings about demand pull inflation. This is when AD rises faster than AS so firms collectively respond by increasing prices.

Question 2

Link between AD and RNO

Answer 2

If there is an increased aggregate demand, firms will collectively increase output to meet excess demand so RNO will rise

Question 3

Link between COP and SRAS

Answer 3

If there is an increased cost of production, the SRAS will decrease as it will cost more to produce the same amount of goods/buy more raw materials

Question 4

Link between RNO and GDP

Answer 4

If RNO rises, so will GDP as RNO is a measure of GDP

Question 5

Link between productivity and LRAS

Answer 5

Increased productivity will increase productive capacity so there will be an increase in LRAS as it is shifted upwards by increase in productivity

Question 6

Link between LRAS/SRAS and RNO

Answer 6

An increase LRAS/SRAS means that the firm can collectively supply more, so they would have an increases output.