2.3 Flashcards
What is aggregate supply?
(AS) is the quantity of goods and services that producers in an economy are willing and able to supply.
What is short run aggregate supply?
What does it show?
The relationship between planned national output and general price level.
Shows how much output the economy can generate in the short term at each price level.
What would a rise in the price level do to AS?
Rising prices would increase aggregate supply as more people would want to supply at that price.
What is the main factor causing a shift in SRAS
The main factor causing shift in SRAS is the resource cost of producing goods and services.
What impact would price have on AS?
Movement along the curve.
An increase in price would cause an extension in aggregate supply.
A decrease in price would cause a contraction in aggregate supply.
What cause shifts in short run AS? What
Resources- Wage costs per unit of output. Labour productivity, Raw material and component. Prices such as glass. Energy cost
Business taxes subsidies and regulations ;
VAT, business rates and costs of keeping with regulations.
Supply shocks, Natural disasters hurricane.
Draw an aggregate supply and demand curve?
Real GDP on x axis.
Price level on y axis.
What happens if AD increases?
The new equilibrium will be at a higher price level (inflation) and higher output (economic growth). Ceteris Paribus unemployment will also fall.
What happens if AS shifts to the left on a AS and D curve?
There would be excess aggregate demand so the prices would increase to form a new equilibrium.
Identify and explain 3 factors that affect short run AS?
An increase in the national minimum wage. This would cause an increase in cost of production decreasing profitability, which would cause SRAS to shift inwards.
An increase in VAT would increase costs of production, reducing profitability, decreasing SRAS.
Commodity prices may price which could increase the cost of production, reducing profitability, decreasing SRAS.
Draw a Keynsian AS curve?
See notes attached.
Draw a classical LRAS curve?
see notes attached.
Define spare capacity?
When the factors of production are not being dully employed.
Explain why the Classical LRAS curve is in this shape?
Output can only be increased if the whole LRAS shifts to the right for example if there was an improvement or technology.
LRAS shows the maximum capacity of the economy given the current state of technology.
Identify and explain 6 factors that would shift LRAS?
Anything that increases the productive potential of an economy.
An increase in migration, An increase in the quality of labour, An improvement in technology, An increase in productivity, Net investment increases, Improvement in infrastructure like roads, rail air and telecommunications.
