2.3 - aggregate supply Flashcards
What is Aggregate Supply (AS)?
Aggregate Supply (AS) is the total planned output in an economy at a given price level over a certain time period. It shows the relationship between real GDP and the average price level.
What is an output gap?
An output gap exists when the actual output in an economy is above or below its long-term trend level of output.
What is the short term in economic terms?
The short term is a period when at least one factor of production is fixed and cannot be changed. It involves increasing utilization of existing factors of production.
What is the long term in economic terms?
The long term is a period when all factors of production are variable, allowing for adjustments to maximize output.
What is production?
Production is the process of converting inputs into a final output to meet consumers’ wants and needs.
What is productivity?
Productivity measures the efficiency of transforming inputs into outputs, calculated by output per worker over a period of time.
What does the SRAS curve show?
The relationship between planned national output and the general price level. It is all the industry (microeconomic) supply curves added together
Why does the SRAS curve slope upward?
The SRAS curve slopes upward because firms can increase output temporarily by using measures like overtime, raising production costs. In the short run, firms’ costs rise as output increases, leading to higher prices.
What are factor prices?
Factor prices are the costs associated with inputs used in production. These remain constant in the short run, though as output increases, the average marginal cost rises.
Why is SRAS considered elastic?
SRAS is generally elastic, meaning that increases in output by firms lead to only moderate increases in costs, resulting in a smaller rise in prices.
What effect does a fall in the general price level have on AS?
A fall in the general price level causes an extension of aggregate supply (AS), encouraging firms to produce more.
What effect does a rise in the general price level have on AS?
A rise in the general price level causes a contraction of aggregate supply (AS) as higher prices may reduce demand.
What causes movements along the SRAS curve?
Movements along the SRAS curve are caused by changes in the price level, while shifts are caused by changes in production costs like raw material prices, exchange rates, and tax rates.
What factors cause shifts in the SRAS curve?
Shifts in SRAS are caused by changes in production costs such as raw material costs, energy prices, exchange rates, taxes, subsidies, wages, and overhead costs.
What are supply-side shocks?
Supply-side shocks are unexpected changes, such as technological advances or wars, that can shift SRAS and sometimes LRAS, where costs of production are affecting growth either positively or negatively.
