T4

Question 1

quantity supplied and supply

Answer 1

• the quantity of real GDP supplied= the total quantity that firms plan to produce during a given period

Question 2

aggregate supply

Question 3

long-run aggregate Supply

Answer 3

• relationship between the quantity of real GDP supplied and the price level when the money wage rate changes in step with the price level to maintain full employment
• in the long run, the quantity of real GDP supplied is potential GDP
• as price level rises and money wage rate changes by the same percentage, the quantity of real GDP supplied RE MAINS AT POTENTIAL GDP.

Question 4

short run aggregate supple

Answer 4

• the relationship between the quantity of real GDP supplied and the price level when the money wage rate, the price level when the money wage rate, the prices of other resources and potential GDP remain consistent
• a rise in the price level with no change in the money wage rate and other factor price increases the quantity of real GDP supplied
• in the SR the quantity of real GDP supplied increases if the price level rises.
• the SAS curve slopes upwards
• a rise in the price level with no change in the money wage rate includes firms to increase production

Question 5

what causes changes in aggregate supply

Answer 5

agregate supply changes if an influence on production plans other than the price level changes.
these influences include:
- changes in potential GDP: GDP inc= both the LAS and SAS curve shifts rightwards.
- changes in money wage rate (and other input prices): a rise in money wage rate decreases short-run aggregate supply and shifts the SAS curve leftwards. HAS NO EFFECT ON LONG-RUN AGGREGATE SUPPLY

Question 6

3 reasons GDP increases

Answer 6

• an inc in the full-employment quantity of labour
• an inc in quantity of capital (physical or human)
• an advance in technology

Question 7

what favours an increase in the money wage rate?

Answer 7

• an expected increase in the inflation rate
• unemployment rate is below the natural rate of unemployment

Question 8

aggregate demand

Answer 8

the quantity of real GDP demanded, Y, is the total amount of final goods and services produced in an economy that households, businesses, governments and foreigners plan to buy
- the quantity is the sum of consumption expenditure C, investment I, government expenditure G, and net exports X-M.

That is: Y= C+I+G+X-M

Question 9

aggregate demand: buying plans depend on many factors and some of the main ones are

Answer 9

1. the price level
2. expectations
3. fiscal policy and monetary policy
4. the world economy

Question 10

the aggregate demand curve

Answer 10

aggregate demand is the relationship between the quantity of real GDP demandedd and the price level
- the aggregate demand curve (AD) plots the quantity of real GDP demanded agains the price level

Question 11

in MICROECONOMICS we have seen that the demand curve slopes downwards. why?

Answer 11

• income and substitution effect

Question 12

the aggregate demand slopes downwards for 2 reasons:

Answer 12

• wealth effect: general inc in level of prices has negative impact on our wealth therefore we spend less= quantity of real GDP demanded decreases

substitution effects:
(interest rate effect- intertemporal substitution effect): banks inc interest rates, so we as individuals would earn to save more, therefore we would gain more from a saving that if we were to spend.
(exchange rate effects- international substitution effects): a rise in the price level. other things remaining the same, increases the prices of domestic goods relative to foreign goods, so imports increase and exports decrease, which decreases the quantity of real GDP demanded