Macroeconomic Equilibrium Flashcards
1
Q
Where is macroeconomic equilibrium
A
Where AD intersects SRAS
2
Q
What matters about macroeconomic equilibrium
A
Whether the total demand for goods and services is close to the total actual level of production from domestic and external sources
3
Q
What does an increase in aggregate demand cause
A
An expansion of aggregate supply and a higher equilibrium level of national output / income (i.e. higher real GDP)
4
Q
Impact of an increase in AD
A
- expansion of aggregate supply and a higher equilibrium level of national output (GDP)
- cyclical rise in output and employment
5
Q
Impact of an increase in AS
A
- expansion of AD and a higher equilibrium level of national output (GDP)
- shift in AS (caused by lower unit costs) should help to increase business profits and prompt a rise in planned capital investment
6
Q
Impact of a fall in AS
A
- lower equilibrium of national output
- AS shift by a rise in unit costs will lead to lower profits
- effects of AS shift depend on the cause
7
Q
When can AS fall
A
Both in the SR and the LR
8
Q
Causes of a fall in AS
A
- brain drain
- steel decline in business capital investment spending
- higher commodity prices
- natural disaster / political conflict
9
Q
Possible macro consequences of a fall in AS
A
- inflation
- real GDP growth
- lower profits, investment and employment
- worsen the trade balance
10
Q
Ceteris paribus, a rise in the global price of energy (such as gas, electricity and other fuel) is most likely to cause what
A
- high inflation (SR)
- lower economic growth
- higher unemployment
- deterioration of balance of trade
- increased spare capacity
- fall in business investment
- deterioration in government fiscal balance
