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List the components of AD and explain how each of these components is determined.
C + I + G + (X-M)
Consumption: The biggest influence on AD, changes in income, consumer confidence,
savings, availability of money/credit and the cost of it (rate of interest) are likely to
Aggregate supply refers to the total value of goods/services produced in the
In the short run, it's assumed the capacity to produced is fixed which means output
can only be produced is there is spare productive capacity. Fixed costs cannot change
in the short run.
Aggregate supply in…
Define inflation and distinguish between demand-pull and cost-push inflation
Inflation is described as the persistent rise in price of goods/services measured over
a period of time (annually) and as a percentage.
Demand pull inflation is inflation caused by an increase in aggregate demand. (An
increase in aggregate demand occurs when…
change in the economy's structure. (Supply-side cause)
Demand Side causes of unemployment:
- A deficiency of aggregate demand in the economy can cause cyclical
unemployment. There is not enough demand to employ the available factors of
production in the economy and so unemployment occurs as AD is below the full…