Aggregate supply (AS) is defined as...

total amount of goods and services (real output) produced

Why are capital goods important?

Their use adds to capacity and output

Why is the LRAS vertical?

In the long-run the economy produces potential GDP

What happens when the pound gets stronger?

Imports are cheaper so AS shifts to the rights

Supply-side policy aims to...

Raise the productive potential of the economy

Why is the aggregate supply curve upwards sloping?

Firms will produce more output at higher price levels

What is the difference between short run aggregate supply and long run aggregate supply?

SRAS assumes that the level of capital is fixed

The SRAS is affected by costs of production. Which of these will shift AS left?

increase in wages, increase in raw material prices

What does productivity measure?

how much a business has produced in relation to resources

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AD and AS

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Quiz on aggregate demand and aggregate supply

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Questions 25

Answers

1
Which of these is not a component of AD?
Consumption
Government spending
Interest rates
Net exports
2
Which of these components remain unaffected by changes in interest rates?
Consumption
Net exports
Government spending
Investment
3
Aggregate supply (AS) is defined as...
Capital goods, such as machinery, equipment
the supply of a number of types of goods and services
total amount of goods and services (real output) produced
supplied by the private sector, and consumed by households
4
AD is the same as what?
Growth
Real National Output
GDP
Productivity
5
Why are capital goods important?
They are needed in the economy
They are part of the factors of production
Machinery and equipment are supplied to other firms
Their use adds to capacity and output
6
Why is the LRAS vertical?
It is only the keynesian one that is vertical
Real GDP is interdependent of the price level
In the long-run the economy produces potential GDP
The country starts to run out of goods and services
7
Which of the following would not affect LRAS?
↑Price level
↑Technology
↑Capital stock
↑Human capital
8
Which of the following shifts LRAS inwards?
Decreased Productivity
Increased Capital
Increased Emigration
Increased Investments in Research and Development
9
What happens to AD when there is a rise in house prices?
AD stays the same
AD increases
AD decreases
AD shifts
10
What happens when the pound gets stronger?
Imports are cheaper so AS shifts to the rights
Imports are cheaper so AS shifts to the left
Imports are expensive so AS shifts to the rights
Exports are cheaper so AS shifts to the rights
11
What is the main target of supply side economics?
Increase Government Spending
Increase Income Tax
Lower Demand
Increase Production of Goods
12
What happens to AD when there is an increase in income tax?
AD stays the same
AD decreases
AD increases
AD shifts
13
A vertical LRAS curve is a ....
Keynesian LRAS
New Classical LRAS
14
What happens when there is a fall in raw material costs?
AS decreases - shifts left
AD increases - shifts rights
PPF increases
AS increases - shifts right
15
What happens to AD when share prices fall?
AD increases
AD stays the same
AD decreases
AD shifts
16
Supply-side policy aims to...
Shift the Aggregate Supply Curve to the left
Reduce inequalities of income & wealth
Improve regulations & strengthen employment protection laws
Raise the productive potential of the economy
17
"Is a vertical curve and not affected by the price level." What is this a description of?
AD
LRAS
Classical LRAS
Keynesian LRAS
18
Which of these do not affect AS?
Labour
Consumption
Capital
Land
19
Why is the aggregate supply curve upwards sloping?
Real output was that it was fixed at a particular level
Firms will produce more output at higher price levels
Firms expect they will benefit from a rise in price level
At higher price levels, firms expect that they can sell
20
What is the difference between short run aggregate supply and long run aggregate supply?
SRAS assumes that the level of consumption is fixed
SRAS assumes that the level of capital is fixed
LRAS assumes that the level of capital is fixed
SRAS assumes that the level of capital is fixed for 1 year
21
What would move the LRAS curve out to the right?
An increase in the price level.
Increasing the budget surplus.
Giving markets more freedom.
An increase in GDP.
22
The SRAS is affected by costs of production. Which of these will shift AS left?
increase in investment
increase in wages
increase in raw material prices
decrease in labour productivity
23
What causes a movement along the AD curve?
Price level change
Inflation
Income change
Output increase
24
What does productivity measure?
how much a business has produced in relation to resources
how much material a business uses
how much a business earns
how many workers a business has
25
What is the effect of falling gas prices?
AS increases
No change
AD increased
AD decreases

AD and AS Flashcards | StudBud