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

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.

Trade Cycle

In reality

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

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

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

Changes in AD Table pg 64

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?

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.

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

Figure 2 pg 66

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

Rising AD with LR growth Look at figure 3 pg 66

Multiplier What is this? How can it be explained?

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

Exam style question Plan out response to essay question pg 69