10.2 - aggregate demand and aggregate supply Flashcards
What is aggregate demand?
total planned spending on real output in the economy at different price levels
What is reflationary policies?
policies that increase aggregate demand with the intention of increasing real output and employment
what are the two reflationary policies?
expansionary monetary and expansionary fiscal policies
What is aggregate supply?
the level of real national output that producers are prepared to supply at different price levels
What are the factors that make up AD?
C + I + G + (X - M)
What are the assumptions made when modelling AD?
that consumers will always act in their own interests
What are the assumptions that are made when modelling AS?
- all firms seek to max profits
- short run, the cost of producing extra units of output increases as firms produce more output
What causes the AS curve to shift?
any factor other than a change in price can cause the AS curve to shift
What is long run aggregate supply?
real output that can be supplied when the economy is on its PPF
What does the LRAS show?
when all factors of production are employed and producing at their normal capacity
What is an economic shock?
an unexpected event hitting the economy
What are the two types of economic shock?
demand-side and supply-side
What is an example of an economic shock in recent years?
financial crisis
covid
Brexit….
What happened after the El Niño effect?
this was an economic shock in 1997-98. This affected the weather conditions and can restrict the amount of rain-driven agricultural goods (ie crops).
Which countries saw a decrease in economic activity? (El Niño case study)
Australia, Chile, India, Indonesia, Japan, New Zealand and South Africa
Which countries saw an increase in GDP? (El Niño case study)
USA - fall of hurricanes and many others saw short term inflation increase
