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How do I analyse AD/AS changes?, Test - Coggle Diagram
How do I analyse AD/AS changes?
There is a change in the Qty or Quality of resources (including a change in productivity)
This should shift the full AS curve
There is a change in COST OF PRODUCTION (not due to a change in productivity) that impacts THE ENTIRE ECONOMY e.g. wages, oil prices
This should shift SRAS only
I can identify a change in AD components (C, I, G, X, M)
There is a change in X/M
This will change AD
There is a change in G
This is due to spending such as on infrastructure that has an impact on AS
If it is an increase in G in such areas, both AD and AS will increase
This is due to current spending such as increase in salaries for civil servants, which does not impact the qty or quality of resources.
only AD will change
There is a change in I (e.g. a firm purchases more machines)
This will shift AS
(NOTE: AS is a stock concept)
I decreases
AS will shift right but at a slower pace compared to before. This is because there is new capital equipment added, but this year, the addition is lesser than the last year’s.
I increases
This will shift AS to the right because qty of resources increases.
This will shift AD
(NOTE: AD is a flow concept)
An increase in I increases AD, while a fall decreases AD.
There is a change in C
It is due to a change in autonomous C. (E.g. I/r falls, borrowing to spend increases, hence C increases.)
AD will change
It is due to a change in induced C.
AD does not change DUE to a change in C. An increase in induced C is due to a increase in income. It will be wrong to suggest this will increase AD, because this increase in induced C must’ve been due to some other injection. You should identify that other AD factor instead of attributing it to C.
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