2.3 Aggregate Supply Flashcards
What does short run mean?
At least one factor of production is fixed
What does a short run aggregate supply curve look like ?
Why does the short run aggregate supply curve slope upwards?
Overtime
What is aggregate supply?
The total amount produced in an economy
What are the two types of long run aggregate supply (LRAS) curves?
- Neoclassical
- Keynesian
describe the keynesian LRAS curve
- at the start nothing is being produced, loads of resources are availible to it is easy to increase output
- as more is produced, resources run out, so it is harder to increase output
- economy cannot produce anymore because all resources are used up
draw the keynesian curve
sick back flip
what is spare capacity?
when an economy is producing below it’s maximum potential output
factors of production are not fully utilised
what is a bottleneck?
when an economy is nearly producing at it’s maximum potential output
what is the neoclassical long run aggregate supply model?
- always at full employment
- in the long run always time to have fully use up all it’s resources
neoclassical curve
similar to PPF
what causes the shifts to Long Run Agreggate Supply?
- technological advances
- changes in relative productivity
- hnages in education and skills
- changes in goverment regulations
- demographic changs and migration
- competition policy
for suppliers
show shifts in the LRAS diagrams
how do oil prices (commodities) affect AS curve?
- an increase will increase transportation/production costs
- increase in costs
- cannot afford to produce as much
- decrease in SRAS
what are some commodities?
affect macro markets
- oil,coal, gas : transportation
- wheat, corn: all food
- steel: electronic devices, skyskrapers
commodities: commony used
how do natural resources affect Aggregate Supply?
- an increase in natural resoucres is an increase in land
- increase in factors of production affect the LRAS
- shift in LRAS
how will investment impact aggregate supply?
- increase in investment
- increase in productivity of factors of production
- shift in LRAS
Model an economies short run equilibrium
Model an economies long run equilibrium (Keynesian)
Model an economies long run equilibrium with the neoclassical model
What would the effect of a decrease in incomes have on an economies equilibrium?
what evaluation can be used with keynesian curves?
However, the effect is dependant on where along the LRAS the econpmy is. If our initial equilibrium is at spare capacity (Y1,PL1), a decraese in AD from AD1 to AD2 will not affect the price level, only the real GDP will decrease
How will the dot com bubble impact the economy equilibrium
How will an increase in VAT impact the economy?
define aggregate supply
total planned output of goods and servives in an economy at a given time and price level
define short run aggregate supply
aggregate supply when at least one factor of production is fixed
what factors cause shifts in short run AS?
- changes in costs of raw materials/ energy
- changes in exchange rates
- changes in tax rates
all affect the cost of production
