Variables that shift SRAS
1. Expect changes in future price level. Generally, if workers/firms expect price level to increase
by a certain percentage, the SRAS will shift by an equivalent amount.
2. Adjustments of workers/firms to errors of past expectati
Increases in real GDP/capita depend on increase in Labour productivity.
Labour productivity: The quantity of goods and services that can be produced by 1 worker in 1 hour
of work. Two factors determine this:
1. Increases in capital per hour worked.
How do financial institutions create money?
Bank balance sheets: Assets, liabilities and owners equity.
Shareholders/owners equity = net worth
Reserves: Deposits that a bank jeeps as cash in its vault or on deposit with the RBA.
Simple deposit multiplier:
Fiscal Policy: Changes in Federal Tax and purchases that are intended to achieve macroeconomic
policy objectives, such as high employment, price stability and healthy levels of economic growth.
Technically only federal government actions can change fisca
Inflation: The sustained increase in the general level of prices in the economy.
Price Level: A measure of the average prices of goods and services in the economy.
Inflation rate: The percentage increase in the general price level in the economy from one
Macroeconomics: The study of the economy as a whole, including topics such as inflation,
unemployment and economic growth.
Economics Growth: The expansion of societys productive potential. Economic growth is usually
measured by the rate of growth in real
rate of technological change is influenced by economic incentives
Accumulated knowledge capital is a key determinant of economic growth.
o At firm level: Increased capital has diminishing return
o At economy level: increased capital have increa
4 most important variables:
1. Expectations of future profitability (optimism/pessimism)
2. The interest rate (household purchases)
4. Cash flow: The difference between the cash revenue received by the firm and the cash