2.3 aggregate supply

Question 1

the as curve

Answer 1

-shows the quantity of real gdp which is supplied at different price levels in the economy
-sras curve is upward sloping because at a higher price level, producers are willing to supply more because they can earn more profit

Question 2

the relationship between short run as and long run as

Answer 2

-short run is when at least one factor if production is fixed, long run all factors of production are variable
-sras only covers the period immediately after a change in price level
-sloping upward because supply is assumed to be responsive to change in ad
-lras shows potential supply of an economy in the long run

Question 3

why is the lras curve vertical

Answer 3

supply is assumed not to change as the price level changes

Question 4

factors influencing lras

Answer 4

-cost of raw materials, rise will lead to increased costs for businesses and decrease real gdp
-stronger currency, reduces the price of imports reducing business costs so real gdp would increase
-increased tax rates, would increase business costs and decrease sras and real gfp

Question 5

keynesian lras curve

Answer 5

-suggests that the price level is fixed until resources are fully employed
-output changes are not inflationary when there is spare capacity
-once resources are fully employed the increase in output will be inflationary

Question 6

classical lras

Answer 6

.-output is fixed at each level
-all factors of production sun the economy are fully employed in the long run
-changing ad will only impact the price level not the national output

Question 7

factors influencing the long run as

Answer 7

-technological advances, when money is spent on technology it may increase the output of goods
-changes in relative productivity, a more productive labour and capital input will increase output
-changes in education and skills, improves the quality of human capital
-changes in government regulations, can limit how productive a firm is with red tape restrictions