Part 2 - Macroeconomic equilibrium analysis

Question 1

What is AD?

Answer 1

The total demand for goods and services in an economy over a period of time

Question 2

What is consumption and what percentage of AD does it make up?

Answer 2

Spending by households on domestically produced goods and services - 61%

Question 3

What is investment and what percentage of AD does it make up?

Answer 3

Planned demand for capital goods - 16%

Question 4

What is government spending and what percentage of AD does it make up?

Answer 4

The total amount of expenditure by the government - 25%

Question 5

What is balance of trade and what percentage of AD does it make up?

Answer 5

(Exports - Imports) - 1%

Question 6

What causes a shift in AD?

Answer 6

Change in C, I, G or (X-M)

Question 7

What is the difference between SR and LR?

Answer 7

In SR at least one factor of production CAN’T be changed
In LR all factors of production CAN be changed

Question 8

What is AS?

Answer 8

The total level of goods and services that can be produced in an economy over a period of time

Question 9

What does LRAS show?

Answer 9

The productive potential of an economy

Question 10

What factors affect SRAS?

Answer 10

Changes in costs of production (but factors of production remain constant)

Question 11

What factors affect LRAS?

Answer 11

Changes in the quality and/or quantity of the factors of production