Exam revision

Why does the aggregate demand curve slope downwards (list Exchange Rate effect)?

Higher interest rates appreciate the domestic currency, reducing net exports.

What happens to LRAS if technological change occurs?

It shifts to the right

What’s the main goal of Monetary Policy in Australia?

Price stability and/or maintaining full employment

What is the difference between long run and short run economics?

Long run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. In the short run there are some constraints and markets are not fully in equilibrium.

What is the simplified growth rate formula?

((New-old)/old)*100

Does gov spending shift the AD curve?

Yes - to the right if it goes up, to the left if it goes down

Long run macroeconomic equilibrium occurs when…

Aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve.

What relationship is shown by the AD curve?

The price level and the quantity of real GDP demanded

What happens to the money demand curve if the price level increases?

It shifts to the right

What causes labour productivity to increase?

Quantity of capital per hour worked and the level of technology (more so on the latter than the former)

What is human capital?

Accumulated knowledge and skills workers acquire from education and training or from their life experiences.

What is potential GDP?

The level of real GDP attained when all firms are producing at normal capacity

Calculate Y within a closed economy

Y = C + I + G

Has government spending as a percentage of GDP consistently trended upwards in Australia since the 60s?

No

Formula for investment in a closed economy?

I=Y-C-G

What does LRAS represent and what does it look like?

LRAS is a vertical line at potential GDP - viewed as the full (natural rate) employment level of output

What increases potential GDP?

Increases in resources, increases in machinery/equipment, new technology

Increased labour force, capital stock, resources and technological change do what?

Shift LRAS and SRAS to the right