2.3 Aggregate Supply

Question 1

What is AS?

Answer 1

Volume of goods and services produced in an economy at a given price level.

Question 2

What is diff between short run and long run?

Answer 2

Short run
- Time period where at least one factor of production is fixed
Long run
- All factors variable

Question 3

What influences change to SRAS?

Answer 3

Costs of production or productivity

Question 4

Factors influencing SRAS

Answer 4

Change in costs of raw materials/energy
- Firms import raw materials; increase price; decrease SRAS
Change in x rate
- Firms import raw materials; devaluation increases price of imports; increase CoP; decrease SRAS
Changes in tax rates
- Increase tax; increase CoP; lower SRAS

Question 5

In LRAS how is AS determined?

Answer 5

Determined by level of all FoPs and quality of technology

Question 6

What is classical LRAS and what does it state?

Answer 6

Vertical line on diagram
Market corrects itself quickly
At disequ, market will naturally move to equilibrium where all resources employed

Question 7

What is Keynesian LRAS and what does it state?

Question 8

What causes an increase in LRAS?

Answer 8

Economies are able to produce more / same as outward shift of PPF

Changes to quality or quantity of FoPs

Question 9

Factors influencing LRAS

Answer 9

Technological advances
- Quality of FoPs increase
Changes in productivity
- Innovation results in productivity improvement, firm able to produce more
Changes in education/skills
- More productive workforce, better quality labour, increased LRAS
Changes in govt regulation
- Improve Quantity of FoPs
Demographic changes/migration
- Increase quantity of labour
Competition policy
- Prevent monopoly power; more firms supplying products; increases potential output