The AD/AS Model And Introduction

Question 1

What does ad stand for? And what does it mean

Answer 1

Aggregate demand: goods an agent is willing to buy

Question 2

What does AS stand for? And what does it mean

Answer 2

Aggregate supply
- goods produced in a country

Question 3

What is the formula for AD

Answer 3

C + I+ G+ NX = EXPENDITURE

Question 4

Is AD a positive of negative function ? And how does it work

Answer 4

Negative
- demand is lower where prices are higher and vice versa.

Question 5

Is AS a positive function or a negative function?

Answer 5

Positive,
- supply is higher when prices are higher

Question 6

What are sticky wages?

Answer 6

Wages do not always change with economic changes
Eg salary may not go up by 10% if inflation goes up

Question 7

What is the misperception theory ?

Answer 7

• it is hard for producers to understand why prices change

Question 8

What is the AD/AS equilibrium?

Answer 8

This is the point where supply = demand
Expenditure = production

Question 9

In expansionary policies what the difference between, fiscal or monetary policies ?

Answer 9

Expansionary - aims to increase expenditure
Fiscal - increase government spending and or taxation
Monetary - reducing interest rate which

Question 10

What are contractionary policies what is the difference between fiscal monetary policies

Answer 10

Contractionary - reduce expenditure
Fiscal - reducing government spending
Monetary - increase interest rate will reduce investment

Question 11

According the Keynes what causes the flu actuations in business cycles?

Answer 11

They reduce aggregated demand

Question 12

What should you do when negative supply shock ?

Answer 12

Expansionary policies - bring Y to a natural level

Contractionary - tame inflation