2.3 - Aggregate supply

Question 1

What is aggregate supply (AS)?

Answer 1

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

Question 2

What is the shape of the short-run aggregate supply (SRAS) curve?

Answer 2

Upwards sloping.

Question 3

What causes movement along an AS curve?

Answer 3

A change in price level.

Question 4

What causes a shift in the SRAS curve?

Answer 4

Change in the costs of production.

Question 5

What causes a shift in the LRAS curve?

Answer 5

Change in quantity or quality of the factors of production.

Question 6

What is the difference between SRAS and long-run aggregate supply (LRAS)?

Answer 6

SRAS assumes some resources are fixed, whereas LRAS assumes all resources are variable.

Question 7

What is the shape of the LRAS curve?

Answer 7

Classical: vertical line

Keynesian: backwards sloping L-curve.

Question 8

What does the Keynesian approach to LRAS suggest?

Answer 8

The economy may still be in equilibrium with unemployment and an increase in output can achieved without a great increase in costs.

Question 9

What are 4 factors that influence SRAS?

Answer 9

Change in costs of raw materials.

Change in exchange rates.

Change in tax rates.

Change in level of tariffs (taxes on imports).

Question 10

What are 4 factors that influence LRAS?

Answer 10

Technological advances.

Changes in productivity.

Changes in education and skills.

Migration.