| What would an AD Graph look like? | -Very Similar to that o a Demand Curve, but has different Axis
-The X Axis is National Output
-The Y Axis is Price Level, which in the UK, is the CPI |
| Why may Price Levels increasing [Movement on the AD Curve] lead to Output Falling? | -Consumption in the Home Nation will be Limited as its more Expensive
-Exports will see Less Demand as its less Competitive
-Imports will see More Demand, given their Prices haven’t Risen [More Cheaper] |
| How can AD shift to the Right? | -This happens if either Consumption Rises [Less Income Tax leads to more Disposable Income - more Spending] or more Investment by Firms [Bright Futures can encourage Firms to Expand] or if Government wants to Spend more into the Economy [Changing its Fiscal Policy] or if Exports Increase / Imports fall [Weaker Currency can lead to Exports more Competitive] |
| Lets say at Price P, it creates a Y of Real GDP
-The AD Curve shifts to the Right. What happens now? | -At the Price P, it will mean that there will be More Output Produced due to the AD shifting to the Right [Y2]
-But also, the Y will be, on the New AD Curve, be at a higher Price Level so a Given Amount of Output will have a Higher Price [Inflation..] |
| If AD Increases, what knock on effect does it have for Labour? | -If AD is going up, Output as a Result will go up, meaning the Demand for Labour will go up. This is Derived Demand
-More Jobs will be made so the Output needed will be Made. |
| How can the AD shift to the Left? | -This happens if Consumption Falls [High % Rates leads to People saving More and Spending less] [Investment stutters as Borrowing Cost is Expensive] or if Governments spend Less [Decides to Tax Less and Fund Less on their Public Services] or if Imports Rise and Exports fall [From a Strong Currency] |
| Lets say at Price P, it creates a Y of Real GDP
-The AD Curve shifts to the Left. What happens now? | -At the Same Price, there will be Left Real GDP producing [Y2]
-Furthermore, the Same Output from the old AD Curve will have a Lower Price on the new AD Curve |
| What does the Multiplier Effect do to AD? | -AD will be Shifting right when an Injection in the Economy [Government Spending] is Present
-When the Money is Injected, the Value of the Starting will be Multiplied. Someone's Expenditure is another's Income
-This leads to the AD shifting further and further Right |
| What are the Limitations and Difficulties of the Multiplier Effect? | -The Size of such Effect depends on Leakages from the Circular Flow of Income, which is hard to Measure in Reality.
-Time Lags, and often Years of Government Spending showing in the Economy in its Full
-Measuring the Size of such Effect is hard as it is Changing Constantly
-Governments as a result may be Unable to Control GDP very much |
