1. Lesson Objectives All Students will Most students will
Revise and understand the concept of AD/AS
Most students will
Understand importance of AD/AS analysis
Some students will
Understand how AD/AS analysis can be built into essay answers

2. Definitions revisited
Economic growth is defined as an increase in an economy's ability to produce goods and services.
One of the best statistical measures of economic growth is GDP, which basically measures the level of output in the economy.

3. Trade Cycle

4. In reality

5. Recession 2 consecutive quarters of negative growth
Associated with low Demand and high unemployment
Possible “however” is low inflation – BUT “stagflation” – sometimes occurs, falling GDP and rising prices

6. Aggregate Demand
This is the Total Demand for goods/services in the economy
How would this be made up??
E.g. demand from consumers

7. Aggregate Demand
C = Consumption – household spending on goods and services
I = Investment – spending on capital goods which increases productive capacity (how much a business can produce)
G = Government spending e.g. schools, NHS, road building
X-M = Exports minus Imports – balance of trade

8. Changes in AD
Table pg 64

9. How is Economic Growth achieved
An increase in an economy's ability to produce goods and services, therefore increasing economic output (SUPPLY), is possible under two conditions:
More resources are used in the economy.
Existing resources are used more efficiently.
Q -What would an Aggregate Supply curve look like?

10. Aggregate Supply
Why is the curve horizontal up to point X, and then vertical at full employment? X
Full Employment
AS measures the total contributions to total output from all activities in the economy. The AS curve plots the total quantity of goods and services that the economy is willing to supply at different price levels.

11. Shifts in AS curve??
Is it possible? If so how could it shift? What could cause it to shift? Discuss with a partner.

12. Figure 2 pg 66

13. Interaction of AD and AS
What are the pros and cons of this shift?

14. Rising AD with LR growth
Look at figure 3 pg 66

15. Multiplier
What is this? How can it be explained?

16. Multiplier
Represents the size of the change in the level of economic activity in relation to the original change in the level of expenditure
Flow diagram pg 68

17. Exam style question
Plan out response to essay question pg 69