AD And AS

Question 1

GDP calculation

Answer 1

C + I + G + (X-M)

Question 2

AD determinants

Answer 2

• consumption (confidence, taxes, interest, debt)
• investment (tech, taxes)
• Gov spending (fiscal policy decisions)
• net exports (x-m)

Question 3

SRAS determinants

Answer 3

• wage rates
• price of other factors (raw material)
• indirect taxes and subsidies
• supply shocks

Question 4

LRAS determinate

Answer 4

Quantity and quality of:
- labour (population and education)
- capital (investment and tech)
- land / natural resorouces
- institutional factors / efficiency (law, infrastructure)

Question 5

Monetary policy

Answer 5

When a central bank controls the money supply and credit conditions
Tools used:
- interest rates (lowering encourages spending)
- control inflation is the aim

Question 6

Fiscal policy

Answer 6

The use of government spending and taxation to influence the economy
Key tools
- gov spending
- taxation

Question 7

15 mark

Answer 7

Intro
- key detentions

Main body
P1: workers and unemployed
- less unemployment gives them access to improved living standards /quality of life
- increase consumer spending
- however, must consider wage inequality

P2: households poor and rich
- reducing income inequality benefits poor
- more merit good access to
- may lead to higher taxes on welthu
- leads to reduced incentive
(Insert Lorenz curve)

P3 : gov and society
- reducing unemployment means less spent on benefits - more tax
- reducing unemployment doesn’t eliminate poverty - can use creation programmes

Conclusion - depends on ….

Question 8

10 mark

Answer 8

Intro
- detentions

Explanation:
- May use fiscal or monetary policy to start AD
- can lower in employment but lead to demand pull inflation
(Insert diagram)
- analysis / movement from A to B
- trying to do it quick causes faster inflation

Conclude:
- reducing unemployment aggressively can cause high inflation
- needs to be done carefully