Revision video: using AD-AS diagrams to analyse economic performance

This video explains the link between changes in AD and AS and economic performance using AD-AS diagrams. Key assumption: spare capacity

OCR set three types of last question in F582:

·         Discuss whether a policy (SS) or policy instrument (R, $/£) can affect: a component of AD (C & I) | an economic indicator eg economic growth | an economic objective eg low and stable prices | economic performance eg GDP and inflation

·         Discuss whether a change in a factor influencing a component of AD can affect a performance indicator eg inflation

·         Discuss whether a change in an indicator of economic performance (economic growth, inflation) is beneficial (do benefits outweigh costs)

NB: R affects I; I affects both AD and AS | G on infrastructure and education affects both AD and AS

Evaluation: L3 assumes cet par – what if there is an unexpected event| is a variable eg R the most important | depends on starting position ie capacity | impacts vary between time periods