Aggregate Demand and Supply Side Shocks in the Economy: AD/AS Analysis

The video tutorial explores how aggregate demand (AD) and short-run aggregate supply (SRAS) curve shifts affect the economy using an AD/AS diagram. It distinguishes between gradual shifts and sudden shocks, illustrating their impacts with examples like interest rate changes and oil price fluctuations. The tutorial analyzes isolated AD and SRAS curve shifts, discussing their effects on economic variables such as price levels, output, and unemployment. It also highlights the importance of interpreting price level changes accurately, distinguishing between inflation, deflation, and disinflation. The video concludes by emphasizing the need to consider both immediate and secondary impacts in economic analysis.

What is the main difference between a shift and a shock in an AD/AS diagram?

• A shift is gradual, while a shock is sudden.

• Both are sudden changes.

• Both are gradual changes.

• A shift is sudden, while a shock is gradual.

How does a gradual increase in interest rates affect the aggregate demand curve?

• It causes a sudden outward shift.

• It causes a gradual inward shift.

• It causes a gradual outward shift.

• It causes a sudden inward shift.

What happens to the aggregate demand curve when there is a cut in income tax?

• It shifts outward.

• It fluctuates randomly.

• It shifts inward.

• It remains unchanged.

What is the effect of government spending cuts on the AD curve?

• It causes an inward shift.

• It causes no change.

• It causes an outward shift.

• It causes a random shift.

How does a sudden increase in oil prices affect the SRAS curve?

• It causes an outward shift.

• It causes an inward shift.

• It causes a random shift.

• It causes no change.

What economic condition is characterized by stagnant growth and high inflation?

• Deflation

• Stagflation

• Recession

• Boom

What is the impact of a cut in employer national insurance contributions on the SRAS curve?

• It causes a random shift.

• It causes no change.

• It causes an outward shift.

• It causes an inward shift.

What is the term for a situation where the inflation rate is positive but decreasing?

• Hyperinflation

• Disinflation

• Deflation

• Stagflation

Why is it important to distinguish between changes in the price level and changes in the inflation rate?

• Because they are unrelated.

• Because they are the same thing.

• Because they have different implications for economic behavior.

• Because they always move in opposite directions.

What might consumers do during a period of deflation?

• Invest more in stocks

• Maintain the same level of consumption

• Decrease consumption

• Increase consumption