Source
Also see J1 - The Aggregate demand ／Aggregate supply model
Short-run Equilibrium (SRAS & AD)
When SRAS Curve meets Aggregate Demand, there is equilibrium Thus;
- Changes in AD curve causes a shift in equilibrium Influenced by changes in costs of production or changs in availability of resources
- Changes in SRAS curve causes a shift in equilibrium Influenced by changes in Components of Aggregate Expenditure, e.g. SPICE, or GRIPE, etc.
How to describe in an essay.
As a result of strong growth in China there has been an increase in demand for Australian commodity exports this leads to an increase in aggregate demand (
>> ),
- Identify the Scenario
- Explain the change in AE
- How does that shift the curve
- How does that impact levels of prices & levels of output Due to the increased demand in the economy, there has been an increase in the gneeral level of prices (
>> ), and also an increase in the level of real gdp, and also real gross national income, (from to )
Practise - a decrease in the world cost of oil
As a result of a decrease in world oil prices there has been a increase in costs of production for domestic producers, becuase oil is an extremely common productive input. This leads to a shift in the SRAS Curve to the right. (
to ) as a result of the reduced cost of production, there has been an decrease in the general level of prices ( >> ) World Oil Prices.excalidraw
A increase in the labour force
An increase in the labour force leads to increased availability of labour resources, (likely also a decrease in c.o.p as labour gets cheaper) this leads to a shift to the right in the SRAS curve. (
>> ). Due to the increased Supply, the general level of prices decreases ( >> ) and GDP rises from to . Agg-Supply ExcaliIncrease in Labour Force.excalidraw
A worsening of australias terms of trade
As a result of the worsening of Australia’s Terms of Trade, we see an imediate impact on Net Exports, a component of Aggregate Demand. Thus, the demand curve shifts to the left (
>> ), Due to the decreased demand in the economy, there is a decrease in the general level of prices (inflation) ( >> ), and also an decrease in the level of real gdp (from to ) Worsening Terms oof Trade Equilibrium shift.excalidraw 1
Increase in Mining Investment
As a result of an increase in Mining Investment, we see an immediate increase in one of the components of Aggregate Expenditure (Investment), Therefore, there is a shift in the aggredate demand curve to the right. (
>> ), Due to the increased demand, there is an increase in the general level of prices, ( >> ) and a increase in the real GDP ( >> ).
A downturn in worl economic growth
A decrease in interests rates leading to a decrease in consumer debt
A decrease in interests rates leading to a decrease in consumer debt.excalidraw
a major flooding event affectign the states of qld and nsw
The australian governent spends $1.7b on a new airport in Sydney
The Australian Government reduces the rate of company tax
Simultaneous Shift.excalidraw If there is a simultaeous shift in both the AD & SRAS curves, we can not tell whether the price has increased or decreased, since an shift in the AD curve to the right increases prices, where as a shift to the right in the SRAS curve decreases price, without proper values for each, the price change is indeterminate.
Chapter Concepts:
- The aggregate demand (AD) curve and factors that can cause movements along and shifts of the AD curve
- The aggregate supply (AS) curve and factors that can cause movements along and shifts of the AS scurve
- Macroeconomic Equilibrium using the AD/AS model
- The impact of changes in aggregate demand and aggregate supply on the equilibrium evel of income / output
- The use of the AD/AS model to explain the business Cycle
Syllabus
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