macro equilibrium + shifts

Question 1

short-run equilibrium

Answer 1

AD=SRAS but does not equal LRAS

Question 2

Long-run equilibrium

Answer 2

AD=SRAS=LRAS

Question 3

shifts in AD using exam technique

Answer 3

right shift

-growth: due to the higher demand for goods and services in the economy, firms will increase their output due to a profit incentive, since there is an increase in output, there is a rise in growth
-unemployment: following on from the increase in economic growth, to meet the increased demand for goods and services in the economy, firms will require more labour, thus decreasing unemployment
-inflation: due to the higher economic growth and firms having to match demand with output, there will be pressure on the existing factors of production. they either become more scarce so cop increases, or with wages, workers will demand higher wages as they are having to work harder leading to rise in cop. this rise in cop may be passed onto consumers in the form of higher prices leading to a rise in inflation
trade position: as inflation increases, relative inflation will also increase and British goods may become less competitive as they are more expensive. additionally, with a rise in growth, consumers may purchase more imports (particularly in the UK which has a high MPI)

Question 4

shift in LRAS using exam technique

Answer 4

right shift

-growth: there is an extension in AD, firms match this, due to profit incentive, by increasing production of goods and services leading to a rise in economic growth
-unemployment: falls as it is a derived demand from growth (need more workers to match output)
-inflation: as the productive capacity of the economy increases, there will be more factors of production available, so they are less scarce and inflation decreases
-trade position: improves, decrease in relative inflation, British goods become more competitive and imports become less competitive