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Description
Flashcards by Amardeep Kumar, updated more than 1 year ago
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Created by Amardeep Kumar
almost 9 years ago
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| Question | Answer |
| What is the aggregate supply curve? | The aggregate supply is the sum of all the individual producer supply curves within the economy. It measures the volume of goods and services produced within an economy at a given price level. |
| Why is the aggregate supply curve drawn upward sloping from left to right? | To illustrate a positive relationship between changes in the level of output (real GDP), employment and the price level. |
| What assumption is made when drawing the aggregate supply curve? | The factors that affect the producer’s costs of production are held constant and therefore not changing. |
| How do the costs of production of a supplier cause a shift in the aggregate supply curve? | An increase in costs of production will shift AS to the left, implying a decrease in the quantity supplied. A decrease in costs of production will shift AS to the right, implying an increase in the quantity supplied. |
| What are the main costs of production of a business? | -Wage rates -Material prices -Indirect taxes in. VAT and excise -Energy prices -Productivity |
| How does productivity shift the AS curve to the right? | An increase in productivity lowers the costs of production and increases output. |
| What is the macroeconomic equilibrium? | The economy will be in equilibrium at the price level that aggregate demand equals aggregate supply (Short Run.) |
| What affect will an increase in aggregate demand have on the macro-equilibrium? | An increase in aggregate demand will shift the AD curve to the right. this will cause a movement up the SRAS curve. The new macroeconomic equilibrium will be at a higher price level, and a higher level of output. |
| What affect will a decrease in aggregate demand have on the macro-equilibrium? | A decrease in aggregate demand will shift the AD curve to the left. This will cause a movement down the SRAS curve. The new macroeconomic equilibrium is at a lower price level and a lower level of output. |
| What effect will an increase in aggregate supply have on the macro-equilibrium? | An increase in aggregate supply will shift the SRAS curve to the right. This will cause a movement down the aggregate demand curve. The new macroeconomic equilibrium will be at a lower price and a higher output. |
| What effect will a decrease in aggregate supply have on the macro-equilibrium? | A decrease in aggregate supply will shift the SRAS curve to the left. This will cause a movement up the aggregate demand curve. The new macroeconomic equilibrium will be at a higher price and a lower output. |
| How is the Long Run Aggregate Supply curve drawn? | In the long run, the aggregate supply curve is drawn vertical to illustrate that at a point in time the productive capacity of the economy is fixed. |
| How will economic growth cause a shift in the LRAS curve? | Economic growth occurs when the productive capacity of the economy is increasing and this means the economy is capable of producing more goods and services. Threfore, it will shift the LRAS curve to the right. |
| What effect does a shift to the right of the LRAS curve have on the PPF? | Economic growth will shift the LRAS curve to the right, and also shift the PPF outwards implying an increase in the productive capacity of the economy. |
| What does the position of the LRAS curve depend on? | The quantity and quality of factors of production such as: (a) Capital (b) Labour (c) Land (d) Enterprise |
| What are the key determinant of economic growth? | Investment, in 1. Capital goods such as machinery and 2. Human resources such as labour |
| How can an economy increase its productive capacity? | -Investing in labour through education and training to improve mobility -Increasing the size of the working population through immigration -Increasing the capital stock through physical investment -Investment in science and technology |
| How can the government aid economic growth using legislation? | -Make land more responsive to changes in its demand -Provide incentives through changes in the tax and benefit system -Improve working practices by reforming the rights and responsibilities of worker -Encouraging an entrepreneurial culture |
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