Define AD
total planned aggregate spending on real national output. The AD curve shows total planned aggregate spending at different price levels
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Define AS
total planned supply of real output by all the producers in the economy
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why does the AD curve slope downwards
Increased spending power. At a lower price level, consumers are likely to have higher disposable income and therefore spend more.
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continued !!!!!!!!!
Increase in demand for exports:lower price level in the UK, UK goods will become relatively more competitive, leading to higher exports. AD will be higher. Decrease in Price levels, lower I/R, more AD. (INVERSE)
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Define SRAS
the quantities of real output that businesses plan to produce and sell at different price levels when total productive capacity is fixed but when variable factors of production can be changed
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Define LRAS
the real output that can be supplied when the economy is on its PPF when all the avaliable factors of production are employed and producing their normal capacity of output.
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What factors shift the AD curve
a change in one of the components of AD(Consumption, Government spending, Investment, Imports, Exports)
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What factors shift the SRAS curve
a firm's cost of production(e.g. wage rates, raw material costs), the taxes firms have to pay,, changes in labour productivity
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what factors effect the LRAS curves
max level of real output: produce production potential when all available factors of production are employed and producing their "Normal capacity" level of output. In the LR, firms cannot produce more output to meet the inc in AD.
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what factors effect the SRAS curves
firms may be able to produce beyond their LR sustainable level of Q, but emerging positive output gap will generate inflationary pressures. XSD for real output is met by an increase in PL, with the point of macroeconomic equilibrium moving.
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What causes a shift in the LRAS curve
underlying economic growth is a move alone the trend output line. Underlying economic growth is represented by a rightward shift of LRAS curve.
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what are economic shocks?
sudden unexpected event hitting the economy distibuting AS/AD/both. UK: a war in the Middle East may effect AD as consumer & business confidence is reduced and AS via its effect on the supply and price of crude oil.
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What are the determinants of savings????
Assuming no imports & taxes, saving is simply income that is not spent. same as determinants for consumption & rate of interest, level of income, expected future income, consumer confidence & availability of credit
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what is the difference between savings and investment
Savings: income not spent, households and firms keeping cash reserves. Investment: firms purchase new capital goods. Investment has demand-side effects(component of AD) and supply-side effects(shift LRAS rightward as investment Ec. growth)
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what are the determinants of investment
ACCELERATOR, business confidence & expectations of future profitability, of current investments, rate of interest/cost of borrowing affect funds, technical progress, relative prices of labour and capital which influence choice between them.
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what are the determinants of LRAS
technical progress, quantities of capital & labour & other FOPs, mobility of FOPS, labour productivity, personal enterprise, incentives/risk taking, institutional structure of econ: rule of law & efficiency of banking system
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What does the position of the vertical LRAS represent
normal capacity level of output for the economy: level of output at which full production potential of the economy is being used. On PPF line. when producing at "normal capacity", this is not "full capacity"
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THe economy may still be capable of temporarily producing a higher level of real output in the "boom" stage of the economic cycle
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describe the Keynesian AS curve
inverted L shape. explanation by John Keynes of the Great Depression in the UK and USA economies in the 1930's. He said that a depressed economy can settle into an under-full employment equilibrium. Without gov. intervention, an economy could display
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more or less permanent demand deficiency. market forces would fail to adjust automatically to achieve full employment. if the gov. could shift AD along the horizontal level of the curve(mainly through expansionary fiscal policy), there would be spare
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last part
capacity. A growth in RNO(& emp) without inflation. When "normal capacity" is reached, the AS curve becomes vertical for the same reasons that the other LRAS curve is vertical.
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Define AS


total planned supply of real output by all the producers in the economy

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why does the AD curve slope downwards


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continued !!!!!!!!!


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Define SRAS


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