Variations in Economic Activity (AD & AS)

Question 1

What is Aggregate Demand (AD)?

Answer 1

The total demand for goods and services in an economy at a given average price level.

Question 2

What is the formula for AD?

Answer 2

AD = C + I + G + (X - M)

Question 3

What influences consumption?

Answer 3

Consumer confidence, interest rates, taxes, wealth, household debt, expectations.

Question 4

What influences investment?

Answer 4

Interest rates, business confidence, technology, business taxes, corporate debt.

Question 5

What influences government spending?

Answer 5

Political and economic priorities.

Question 6

What influences net exports?

Answer 6

Income of trading partners, exchange rates, and trade policies.

Question 7

What is short-run aggregate supply (SRAS)?

Answer 7

the total output of goods and services that firms are willing and able to produce at different price levels in the short run, when some input prices (like wages) are fixed.

Question 8

What shifts the SRAS curve?

Answer 8

Changes in raw material/energy costs and indirect taxes.

Question 9

What is long-run aggregate supply (LRAS)?

Answer 9

The total output an economy can produce whe all resources are employed.

Question 10

What causes shifts in LRAS?

Answer 10

Changes in quality/quantity of factors of production, technology, efficiency, institutions.