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Economics Unit 2 ­ Notes
Aggregate Demand:

Definition = Total expenditure in an economy (consumers, businesses,
government, firms overseas)
Why the curve slopes from left to right:

When prices fall consumers experience the wealth effect ­ they feel better off and
so buy more goods and services ­ the wealth…

Page 2

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Government Spending

Increased spending into areas like schools & hospital = Increased AD

Reduced Spending = Reduced AD

Changes in Monetary Policy ­Interest rates fall = lowers cost of borrowing & reduces
incentive to save = Increased AD
Changes in Fiscal Policy ­ Government increase spending = Increased AD, Lower…

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Shift in SRAS

Cause: Any factor that changes firms costs
Increase in costs = Decrease in SRAS

Decrease in Costs = Increase in SRAS

Factors Affecting SRAS:
Wage Rate ­ Increase in wage rate = increase firms costs = Decreased SRAS
Interest Rates ­ Increase in rate of interest =…

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Full Employment:
Unemployment = Waste of a scarce factor of production

Governments want to promote full employment:

Increases standard of living
Reduces human misery (economic, social and health problems in the unemployed)
More income for Governments (tax payments)
Reducing expenditure on benefits

Scenario (Policy Conflict):

Can be achieved by increasing…




really good notes :D

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