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Economic Growth and AS/AD
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What happens to real GDP when there is demand-pull inflation?
Real GDP may increase initially, but excessive demand can eventually cause inflation without growth.
What can cause a shift to the left in the aggregate supply curve?
An increase in production costs, such as higher wages or raw material prices.
What is one limitation of using GDP per capita to measure living standards?
It does not account for income inequality or non-market transactions.
What does 'sticky wages' refer to in the Keynesian model?
Wages do not fall easily, which can prevent the economy from adjusting back to full employment.
Why is sustained economic growth important for developing countries?
It helps reduce poverty, improve living standards, and create employment opportunities.
What does GDP measure in an economy?
The total value of all goods and services produced within a country over a specific period.
What are the main components of the circular flow of income model?
Households, firms, government, financial markets, and the foreign sector.
What is the G in the AD function?
Government spending.
What is the role of the multiplier effect in stimulating economic growth?
It amplifies the impact of an initial injection of spending through repeated rounds of consumption.
A country's GDP is $3.6 trillion and its population is 60 million. What is GDP per capita?
$60,000
How can an increase in investment affect long-run aggregate supply?
It can increase productive capacity and shift the long-run aggregate supply curve to the right.
What does the economic cycle describe?
The recurring pattern of expansion, peak, contraction, and trough in an economy.
Nominal GNI is $2.7 trillion and the deflator is 108. What is the real GNI?
$2.5 trillion
What does purchasing power parity (PPP) compare between countries?
The relative value of currencies based on the cost of a standard basket of goods.
If real GDP was $2.8 trillion last year and $3.1 trillion this year, what is the GDP growth rate?
10.7%
What causes the economy to return to full employment during a deflationary gap in the monetarist model?
Wages and prices adjust downward over time, shifting SRAS rightward automatically.
How does technological innovation affect economic growth in the long run?
It boosts productivity and increases the potential output of the economy.
Nominal GDP is $2.5 trillion and the deflator is 125. What is the real GDP?
$2.0 trillion
What is the difference between GDP and GNI?
GNI includes net income from abroad, while GDP does not.
C is $1.2 trillion, I is $600 billion, G is $700 billion and NX is -$100 billion. What is GDP?
$2.4 trillion
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