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AD / AS - Coggle Diagram

- - - - the amount of money the government spends in the economy on the provision of goods and services, transfer payments to the public.
      - It can be seen as an injection in the economy.
      - Also called as public spending / expenditure.
      - Factors affecting Government Spending
        
        Please the voters
        
        Level of economic activity
        
        Unexpected events
        
        Government Intervention level
    - - are goods and services sold to other countries. Exports are an injection into a nation’s circular flow of income and spending
    - - spending made by firms on capital goods such as new factories & other buildings, plant and machinery, new technology & vehicles.
      - Investment can be seen as an Injection in the economy.
      - Types of Investment
        
        Depreciation is the loss of the value of asset over time.
        
        If gross investment is greater than net investment , then capital stock will grow.
        
        Net investment = Gross investment – capital depreciation
    - - Imports are defined as goods produced outside the boundaries of one country, which are then purchased by that country. Together with exports, imports represent the keystone of foreign trade.
    - - Spending/ Expenditure made by households on goods and services in an economy
      - It is usually the biggest component of AD in an economy.
      - Can make upto 60 – 70% of the economy
    - - Factors affecting it
        
        Credit availability ie loans given out
        
        Price expectation/ Inflation
        
        Consumer confidence
        
        Financial institutions
        
        Rate of interest (ROI)
  - - - When an initial decrease in an injection (or an increase in a leakage) leads to a greater final decrease in real GDP
    - - When an initial increase in an injection (or a decrease in a leakage) leads to a greater final increase in real GDP
    - - Multiplier = 1/1-mpc
      - MPC = change in consumption /change in income
      - Change in National income = Injections x Multiplier
- - - - LRAS shows the total value of goods and services which is supplied by firms in the Long run at a general price level
      - 2 shapes of LRAS: Classical and Keynesian LRAS
      - Causes of shifts of LRAS
        
        Increase in quantity and quality of the 4 FOP
        
        Labour
        
        Capital
        
        Land
        
        Enterprise
        
        High productivity of labour and capital
        
        Increased labour market participation
        
        Gains from innovation and enterprise
        
        Capital Investment
    - - Factors affecting SRAS
        
        Supply Shocks
        
        Business taxes, subsidies and imports
        
        Input costs
      - External factors causing shift of SRAS (Supply Side shocks)
        
        Brexit
        
        Import duties
        
        Oil prices