essential macro logic chains to explain AS-AD diagrams

cyclical unemployment (defintions)

arises from the fluctuations in the economic cycle, specifically during recessions which are two consecutive quarters of negative economic growth

cyclical unemployment logic chain

when AD decreases there is less demand for good and services, this lower expenditure causes firms to reduce their output

cyclical unemployment pt 2

because the demand for labour is derived from the demand for the product, firms will reduce their demand for labour and this reduction will cause firms to lay off employees and increase cyclical unemployment

living standards (definition)

when individuals secure employment, they receive a regular income in the form of wages or salaries

living standards logic chain

disposable income enables consumers to afford good and services, they consume these goods and services to satisfy their needs and wants which may also include consumption that benefits their health and education

therefore there is an improvement in their level of economic welfare and increase in living standards

cost-push inflation (definition)

occurs when there is an increase in the costs of production for firms, leading them to raise prices

cost push inflation logic chain

if the global price of oil increased it will reduce the willingness to supply at a given price level and as firms face higher production costs they respond by increasing the prices of their goods and services to maintain their profit margins

cost push inflation pt 2

this increase in prices is passed on to consumers and happens across a variety of goods and services so this leads to an increase in the general price level throughout the economy

long run growth (definition)

an increase the economy’s productive potential

long run growth logic chain

an increase in gov spending on education and training is an interventionist supply side policy

education and training improves the skills of the labour force and this improves the workers’ output per hour

long run growth pt 2

therefore this can lead to improvements in productivity and human capital

with a more skilled and educated workforce there has been an improvement in the quality of labour therefore the long run aggregate supply curve shifts to the right