2.3 Aggregate supply

Question 1

What is aggregate supply

Answer 1

The total supply of goods and services produced within an economy at a specific price level at a given time

Question 2

What does “short term” refer to

Answer 2

The time period where at least one factor of production is fixed

Question 3

What is meant by a factor of production

Answer 3

Land labour capital and enterprise

Question 4

What is short run AS influenced by

Answer 4

Changes in the cost of production

Question 5

What is LRAS influenced by

Answer 5

Change in the productive capacity of the economy

Question 6

What are three factors that influence SRAS

Answer 6

Changes in costs of raw materials and energy
Changes in exchange rates
Changes in tax rates

Question 7

How does changes in costs of raw materials and energy affect SRAS

Answer 7

Increase in cost of raw materials means less goods and services can be produced at a given price. SRAS shifts left. (Opposite for decrease in costs)

Question 8

How do changes in exchange rates affect SRAS

Answer 8

Weaker currency = expensive imports -> higher costs for businesses (raw materials) -» less output. SRAS shifts left. (opposite for an appreciation of the currency)

Question 9

How do changes in tax rates affect SRAS

Answer 9

Weaker currency = expensive imports -> higher costs for businesses (raw materials) -» less output