AS/AD Shifts + Indicators

• Aggregate demand and aggregate supply are the heart of macroeconomic analysis.
• Understanding the effects of shifts in aggregate demand and aggregate supply on the four key macroeconomic indicators of growth, employment, inflation, and trade position is crucial for effective analysis.
• The trade position is improving, indicating a positive trade balance.
• Growth is increasing from y1 to y2, indicating an increase in economic growth.
• Inflation is decreasing, indicating a fall in the economy.
• Unemployment is decreasing, indicating a reduction in unemployment.
• Intervention to the right in a diagram indicates an increase in all four macroeconomic indicators: growth, employment, inflation, and trade position.
• An increase in growth leads to an increase in real GDP and a decrease in unemployment.
• An increase in inflation leads to an increase in the price level.
• A worsening of the trade position is indicated by a decrease in the trade balance.
• Demand-pull inflation occurs when there is an increase in aggregate demand due to factors such as an increase in wages or government spending.
• An increase in exports makes the economy more competitive, thus increasing exports and improving the trade position.
• When the economy is close to full employment levels of output, there is more pressure put on the existing factors of production, which causes upward pressure on prices and increases inflation.
• A rise in the general living standard leads to an increase in demand for goods and services, which can be met through increased imports.
• An increase in demand leads to an increase in labor demand, which reduces unemployment.
• The descender is an increase in demand.
• Pull inflation is not good because it leads to an increase in the price of factors of production, which in turn increases the cost of production and ultimately increases inflation.
• An increase in imports reduces the current composition of the economy, making it poorer.