2.3 Flashcards
What is Aggregate Supply?
Overall Output of goods and services within certain country in certain period of time. (Total sum of output of goods and services in a given economy)
What is long run aggregate supply?
Represents a maximum output when all factors of production are fully and efficiently employed .
What are the two types of Aggregate Supply?
Short-Run and Long-Run Aggregate Supply
What are the two types of graphs for Aggregate Supply?
Classical Theory which is a straight line which says that little to no government intervention is needed to manage the economy.
Keynesian talks about a curved line on the graph that talks about Government Intervention being needed to manage the economy.
What is Short Run Aggregate Supply?
Short Run Aggregate Supply (SRAS) is the relationship between planned national output (GDP) and the General Price Level (GPL). Must assume Cost of Production, Productivity,State of technology is consistent.
What does the Short Run Aggregate Supply look like on a graph?
It starts at where the y and x axis meet and goes up.
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What’s the difference between short run and long run aggregate supply on factors of production?
Short run Aggregate Supply- One factor of production is fixed and can’t be changed.
Long run Aggregate Supply- All factors of production are variable.
What are the factors influencing short run aggregate supply? (3 Factors)
-Changes in cost of raw materials and energy: increase in cost of raw materials and energy increases cost of production. SRAS will shift to the left as increase in product price level.
-Changes in Exchange Rates: A weaker pound will lead to price increases of imports and will cause SRAS to decrease (shift left) as production becomes more expensive. If pound becomes stronger imports will be cheaper and so SRAS will increase (shift right).
-Changes in Tax Rates: Taxes increase cost of production and thus cause a fall in SRAS (shift to left).
What’s limited in Long-run AS compared to Short-run AS
In short-Run Aggregate Supply the supply can be increases by offering overtime but in the long run there will be a limit on how much supply can be increases as there is a limited amount of labour and machines available.
What does the Long-Run Aggregate Supply Classical model look like?
The Classical model of Long-Run Aggregate Supply is a straight line going up and it shows that there is no government intervention needed. (Laissez-faire)
What does the Long-Run Aggregate Supply Keynesian model look like?
The Keynesian model of Long-Run aggregate supply isa straight like and then curves up. This shows that some government intervention is needed to be used.
What are the factors influencing LRAS? (4 Factors)
-Technological Advances: Improvements in tech shift LRAS to the right meaning more can be produced. This is because it speeds up production.
-Changes in relative productivity: The more productive the economy means that more will be produced with our given resources. Depends on Skill, Labour, Tech and efficiency.
-Changes in Government Regulations: Can affect LRAS through many different ways like increasesing workforce size,make setting up a husiness easier, increase costs of production.
-Demographic changes and migration: If immigration is more than emigration then the population will increase and so will the workforce.
An expansion of SRAS on a graph goes which way?
Shifts to the right and so increases.
A Contraction of SRAS on a graph goes which way?
Shifts to the left and so decreases.
What is a Supply Shock? Does it affect LRAS or SRAS?
Affects SRAS and can also affect a country’s LR productive potential.
