2.3 Flashcards
What is Aggregate Supply?
The total value of output of the economy at a given price level & a given point in time.
What is meant by Short-Run?
It is assumed that all factors of production are fixed apart from labour as existing workers can work overtime.
What causes a movement along the SRAS curve?
A change in price level
Expansion = increase price Contraction = decrease in price
What causes a shift in SRAS?
A change in costs of production.
What is meant by Long-Run?
All factors of production are variable and can increase.
It represents maximum possible output of an economy.
What causes a change in cost of production therefore shifting SRAS?
Changes in:
- Costs of raw materials / energy
- Exchange rates
- Tax rates
What does classical LRAS suggest
The economy will always produce the maximum that its factors of production will allow.
Always producing at maximum capacity.
Why is the Classical LRAS curve vertical
Because classical economists believe markets always function efficiently in the long-run.
So the economy producing on PPF.
What does Keynesian LRAS suggest
The economy could be in equilibrium below full employment in the long-run.
What causes classical & Keynesian LRAS to shift
A change in the quality or quantity of factors of production
Increase = shift right
Decreases = left
What causes a movement along LRAS
A change in Price Level.
What causes a change in the quantity or quality of Factors of production therefore, shifting LRAS
Changes in:
- Technology
- Education and skills
- Relative poverty
- Government regulations
- Population: migration / emigration
- Competition policy
