T2: LS6 - AD/AS & Real National Output

Question 1

Equilibrium real national output definition

Answer 1

Equilibrium real national output: refers to the the GDP produced when AD = AS

Question 2

Aggregate demand definition:

Answer 2

AD: refers to the total quantity of G&S which consumers can and are willing to consume at a given price level over a certain period of time

Question 3

What is Aggregate Supply

Answer 3

AS: Refers to the total quantity of G&S which producers can and are willing to supply at different price levels over a certain period of time.

Question 4

What two models are impacted by Real National Output

Answer 4

Keynesian and Classical AD/AS models

Question 5

Classical model features

Answer 5

• demonstrates a separate LRAS and SRAS line but one AD line
• Classical economists believe that at LRAS, full employment of Factors of Production occurs
  SRAS: A rise in AD will lead to increases in price and output.
  LRAS: A rise in AD will only lead to an increase in prices and inflation

Question 6

Keynesian model features

Answer 6

• Demonstrates an AD line and a curved LRAS line
• Keynesian economists believe that full employment of Factors of Production may not occur in the long-term.
• 3 Stages of LRAS:
  1. High unemployment of FOP, low output and recession
  2. Growth of FOP use where output, FOP use and growth increase but vary
  3. Full employment of FOP where output is constant but price level increase only due to inflation

Question 7

What is sticky downwards in some situations

Answer 7

• Keynesian concept
• The concept that prices of certain G&S and wages can easily increase but it will harder for it to then decrease and go down.
• Wages: employees will be less likely to accept wage decreases and low paying jobs. However, migrants from low-income countries will happily accept this as an increased rate leading to unemployment.