2.3 Aggregate Supply

Question 1

Aggregate supply AS

Answer 1

Total amount of goods and services that all firms in the economy are willing to supply at a given price level in economy in a year

Question 2

Short run aggregate supply curve SRAS

Answer 2

-based on costs of production -incorporate rent/wages /interest and profit
-upward sloping as when price levels increases firms are willing to supply more
-Movement of expansion/contraction due to changes in price level/ changes in AD

Question 3

YFE

Answer 3

Economy at full employment/maximum capacity of all resources

Question 4

Shift in AS curve

Answer 4

Change it to cost of production/productivity shifts AS curve left or right

Question 5

SRAS assumptions

Answer 5

At least one factor of production is fixed

Question 6

Keynesian AS curve

Answer 6

-horizontal to vertical J slope touching YFE at end
-spare capacity until touches YFE
-Price level rises firms generally willing to supply more but comes to point where firms reach maximum capacity

Question 7

Long run aggregate supply LRAS

Answer 7

-Changes in productive capacity
-2 types classical and keynesian

Question 8

LRAS assumption

Answer 8

All factors of production of variable

Question 9

Classical view LRAS

Answer 9

-Supply perfectly inelastic
-shift in a AD no impact on real output because perfectly inelastic
-change in demand = shift outward but can’t change levels of supply so causes inflationary pressure
-LRAS = YFE showing FOP utilised
-economy a self adjusting/correcting by price mechanism
-free from gov intervention

Question 10

Keynesian view LRAS