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AS & AD, Movement along curve, ↑ Productive capacity - Coggle Diagram
AS & AD
Aggregate Demand
Total spending on an economy's G&S at a given price level & given time period
4 components
Consumption (C)
Investment (I)
Gov spending (G)
Net exports (X-M) :
AD curve
Shows dif quantities of total demand of G&S at dif prices
↑ General Price
curve contracts (AD ↓)
Why?
Wealth Effect
↓ Purchasing power
↓ consumption
International Effect
↓ (X-M)
Exports not competitive (too expensive)
Imports more P competitive
Interest Rate Effect
↑ D for money to pay higher P
Money is valued by interest rates
↑ rate to prevent ppl from withdrawing from bank
↓ consumption & investment
Price of all G&S move tgt in 1 direction
Shift
Caused by
non-price factors
(changes in 4 components)
↑ C/I/G/trade surplus
Shift →
Economic growth
Non-Price Factors
C (6)
Tax rates
↑ Direct
↓ Disposable income
↓ Purchasing power
↑ Indirect
↑ P ↓ AD
Incomes
Short term
↓ Y ↓ AD
Long term
↑ Y expectation
↑ AD
↑ Wages
Credit
↑ bank credit ↑ AD
Interest Rates
↑ Rates ↑ Savings
↓ Consumption ↓ AD
Wealth
eg. property, shares, bonds, savings
I (By firms)
Factors influencing spending on bs capital
Expected rates of returns
Interest rates
Sales forecast
Expectations of future
inflation rates
↑ inflation, uncertainty,
doesn't invest
Gov spending
eg. Defense, education, healthcare
Import spending (-)
outflow of funds, ↓ AD
Export earnings (+)
inflow of funds, ↑ AD
Aggregate Supply
Short Run AS
Total output supplied when P of FOPs haven't had time to change (P of FOPs constant)
Movement along curve
(↑ general P)
Why? Price factors
Profit effect
P of FOPs constant
profit ↑
Cost effect
↑ output
↑ cost
↑ P
Misinterpretation
effect
Producers may think that ↑P is due to ↑ popularity of their product when it's just general P ↑, so output ↑
Shifts in SRAS curve
Change in P of FOPs
Changes in taxes for firms (change in cost of production)
Change in res. quality
Change in Q of res
Long Run AS
Rs between real GDP & P changes when P of FOPs has had time to adapt to AD changes
Keynesians
FOR gov intervention for full employment
New Classical Economists
AGAINST gov intervention for full employment
Vertical curve
Shifts (→) in both curves
Changes in Q of Res
Net immigration
Foreigners in & locals out
↑ retirement age
↑ female labours
Net investment
New inv - depreciation/disposal
New res discovered
Land reclamation
Changes in Quality of Res
Education & training
Adv in tech
Total output producers are willing & able to supply at a given price at a given time period
Movement along curve
↑ Productive capacity