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23 Cards in this Set
- Front
- Back
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Def of AD |
this is the total amount of goods and services demanded una country at a given price level |
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Name and explain components go AD |
1) Consumer spending by households on consumer goods and services. It is the larger at component of AD of most countries. Among derterminants if consumer spending is income, confidence, population size 2) investment. This is the spending by firms on capital goods. This is the most unstable component of as it can raise significantly one year and fall the next year. Among determinants: disposable income, confidence, interest rate 3) government spending is the spending by the government on public goods, Merit goods. It is influence by a number of factors such as level of economic activity. A go may spend more money during a period of economic recession in order to stimulate economic activity 4) net exports are determined by income levels, exchange rate and import restrictions |
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Explain the AD Curve |
The diagram above shows a downward sloping A.D. curve, from left to right. An indication that when the general price level increases from P1 to P2 it causes a fall in the real output from Y1 to Y2 |
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Why does AD slopes downwards |
1) at higher price level, purchasing of money falls. This reduces the consumers ability to buy more goods. This leads to a fall in consumption. Thigh might as well lead to a fall in investment. 2) a high price leads to a high nominal interest rate ( interest rate adjusted to inflation). This may lead to a fall in C. 3) when a country has A bigger inflation rate than its trading parte need : exports become more expensive than imports. This may result into a fall in dean and for exports and a rise in deman for imports, causing a fall in AD |
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Shifts OF AD |
The AD curve will change its position if any of the componengs if AD Changes for a reason rather than a change in price level. |
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Shifts OF AD |
The AD curve will change its position if any of the componengs if AD Changes for a reason rather than a change in price level. |
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Examples of why ad nah shift rightward |
Consumption can be affected by sn can be in income. However an increase In consumers undone will do an increase in consumption and will cause a rightward shift Rightward shift can also be caused by an increase in investment due to an increase in investors confidence for interest-rate 3) in addition increasing government spending on infrastructure such as roads schools |
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Def of AS |
this is the total supply of gods and service produced in an economy |
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Def of AS |
this is the total supply of gods and service produced in an economy |
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What does supply depend on and what does as indicate |
Quality and quantity of its resources. AS indicated production potential of a country |
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Def of AS |
this is the total supply of gods and service produced in an economy |
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What does supply depend on and what does as indicate |
Quality and quantity of its resources. AS indicated production potential of a country |
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Why does the AS curve slope upwards |
firms in an economy increase more production as price increases. This is because at higher price, firms are able to cover increasing cost of production. Such as wages, raw materials |
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Def of AS |
this is the total supply of gods and service produced in an economy |
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What does supply depend on and what does as indicate |
Quality and quantity of its resources. AS indicated production potential of a country |
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Why does the AS curve slope upwards |
firms in an economy increase more production as price increases. This is because at higher price, firms are able to cover increasing cost of production. Such as wages, raw materials |
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What will cause an increase of the AS curve |
Changes in technology, improve productivity, improve capital good |
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What do firms aim at |
They aim at increasing AS. However this can take a long period of time compared to changes in AD . According to classical economists, AS the long run is perfectly inelastic. This is bc in the long run a country operates at full capacity so it’s perfectly inelastic |
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What to Keynesian argue and levels of LRSS |
The Keynesians suona argued that AS in the long run has three levels. 1) at the level 1c, an economy has considerable spare capacity. This means that more resources are available to produce goods and services. Therefore LRAS in perfectly elastic. This is because it will be possibile for firms to employ more resources without raising average cost. 2) as the economy approaches full employment of resources, AS becomes more inelastic. This is because firms start experiencing shortages of resources which will increase prices. 3) at level 3, the economy reaches full capacity. This means that there is no room to increase production since resources have been fully used. AS becomes perfectly inelastic, which means any increase in AS will lead to a sharp increase in the price level. |
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Def of national income equilibrium |
This is a situation in an economy where AD = AS |
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What causes a shift of To the right |
A shift of AD to the right cause an increase in the general price level from P1 to P2. This will lead to an increase in the real GDP which as a result will lead to higher incomes, economic growth, output increases, government spending increases |
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What causes a shift of To the right |
A shift of AD to the right cause an increase in the general price level from P1 to P2. This will lead to an increase in the real GDP which as a result will lead to higher incomes, economic growth, output increases, government spending increases |
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What causes a **** of the AS curve to the right |
A shift of AS caused by a decrease in the general price level. This may due changes in technology, education, discovering new resources. This leads to a higher GDP which in rerun will lead to an inc Rez’s un output, income, economic growth |
