Macro

Question 1

What is meant by aggregate supply (AS)?

Answer 1

The supply in the macro-economy.

Question 2

What does a shift in aggregate supply indicate?

Answer 2

A change in the macro-economy.

Question 3

What happens if real output increases in the short run?

Answer 3

Firms may have to pay more money for the quick delivery of raw materials or for overtime.

Question 4

What is the result of increased costs for firms?

Answer 4

The increased costs are passed onto customers, leading to a rise in the average price level.

Question 5

What are factors affecting SRAS

Answer 5

World oil and gas prices
Energy prices/costs
Other minerals/ metal prices
Foodstuff prices
Import tariffs/ quotas

Question 6

What is short run as

Answer 6

Short run as will be influenced by firms cost of production: example a change in price of oil or another major commodity/ raw materials.

Question 7

What are factors effecting LRAS

Answer 7

High productivity of labour and capital
Increased labour market participation
Gains from innovation/enterprise
Capital investment

Question 8

What is macro economic equilibrium

Answer 8

Macroeconomic equilibrium is a condition in the economy in which the quantity of aggregate demand equals the quantity of aggregate supply.

Question 9

What is Aggregate Demand?

Answer 9

Aggregate demand (AD) is the total demand for a country’s goods and services at a given price level and in a given time period.

Question 10

What are the four elements of Aggregate Demand?

Answer 10

The four elements of Aggregate Demand are:
1. Consumer spending (C)
2. Investment expenditure (I)
3. Government expenditure (G)
4. Net expenditure on exports (X) and imports (M)

Question 11

How is net expenditure on exports and imports calculated?

Answer 11

Net expenditure on exports and imports is calculated as exports minus imports.

Formula: X - M

Question 12

What are determinants of consumer spending

Answer 12

Changes in disposable income ( income after tax)
Interest rates change ( cost of spending on credit or saving )
Changes in unemployment
Price expectations
Composition of households

Question 13

Determinants if investment

Answer 13

Interest rate changes ( cost of borrowing and firms have inverse relationship)
Changes in business confidence
Changes in taxation ( corporation tax which is tax on firms profit )
Profitability

Question 14

Determinants of net expenditure on exports and imports

Answer 14

Exchange rate changes
Government restrictions on free trade( tariffs or quotas )
Income levels at home or abroad