1. AD/AS Model and Growth

2. Any increase in Real GDP shows economic growth
AD/AS Model
Price level = average price level of all prices in the economy (Inflation)
Real GDP= Total output of an economy produced in a year
Any increase in Real GDP shows economic growth

3. Aggregate Demand – Recap
AD = C + I + G + ( X –M )
C = Consumption spending
Which is affected by interest rates, disposable incomes, inflationary expectations and consumer confidence
I = Investment spending
By firms. Affected by interest rates and business confidence
G = Government spending
X = Export receipts
M = Import payments
Affected by exchange rates

4. Aggregate Supply AS is affected by changes in Nominal wage rates
Productivity and Technology
Imported raw materials

5. Example The effect of rising oil prices on Real GDP

6. Rising oil prices are an imported raw material
Rising oil prices are an imported raw material. They will cause costs of production to rise for firms, so AS will decrease. (AS shifts left)

7. AS shifts left causes
A fall in real GDP ( from Y to Y1). This shows that the output produced by firms has fallen. Meaning there is less growth.
If producers are producing less, this will mean they will have less demand for labour, causing unemployment to rise. As fewer workers are now required.

8. Show the effect on AD/AS what is the effect on growth?
Income taxes decrease
Business confidence increases
Oil prices rice
Reduction in savings by Nzlanders
Nominal wages increase
NZ dollar appreciates
NZ dollar depreciates
Incomes increase – Consumption increases – AD increases – eco growth increases
Investment increases – AD increases – eco growth increases
Import cost increase – AS decreases – eco growth falls
Savings fall- Consumption increases – AD increases – eco growth increases
Wage costs increase – costs of production increase – AS decrease – eco growth falls
AD – X fall M increase – AD FALLS AS increases as import costs falls
AD – X increases M decrease – AD increase AS decreases as import costs increase

9. Workbooks