2.3 Aggregate Supply Flashcards
What is aggregate supply?
The volume of goods and services produced within the economy at a given price level.
What does the AS curve indicate?
The ability of an economy to produce goods and services and shows the relationship between real GDP and average price levels.
How do businesses typically increase production in the short run?
By increasing employee working hours, using temporary workers, or offering overtime incentives.
What happens to labor costs when production increases in the short run?
Both average and marginal cost of labor per good produced will rise.
Why is the short-run AS curve upward sloping?
Firms are willing to supply more only at a higher price.
What is the likely elasticity of short-run AS?
Short-run AS is likely to be elastic.
What causes a movement along the AS curve?
A change in the price level.
What leads to a shift in the AS curve?
Factors other than price level, such as changes in production costs.
What defines the short run in terms of production factors?
At least one factor of production is fixed and cannot be changed.
What happens to SRAS if the cost of raw materials increases?
The SRAS curve shifts left.
How do exchange rates affect the SRAS curve?
A weaker pound leads to increased import prices, decreasing SRAS; a stronger pound does the opposite.
What impact do tax rates have on SRAS?
Higher taxes increase production costs, shifting SRAS to the left.
What defines the long run in terms of production factors?
All factors of production are variable.
What is the classical view of the LRAS curve?
In the long run, AS is independent of the price level and determined by the level of factors of production and technology.
What does a vertical LRAS curve signify?
The economy produces at its productive potential with all resources fully utilized.
What is the Keynesian perspective on the LRAS curve?
The LRAS curve is not always vertical, especially during periods of prolonged unemployment.
What are ‘sticky wages’?
Wages that do not fall below a certain level due to various factors like union influence and worker expectations.
What can cause an outward shift of the LRAS curve?
Improvements in productivity, technological advancements, and increases in the workforce.
How do technological advances affect LRAS?
They shift the LRAS curve to the right, allowing more goods to be produced.
What effect does a more skilled workforce have on LRAS?
It increases output per worker, shifting LRAS to the right.
How can government regulations impact LRAS?
By increasing workforce size, encouraging research and development, and facilitating business operations.
What role do demographic changes play in LRAS?
Higher population growth increases the workforce, thereby increasing LRAS.
What is the effect of competition policy on LRAS?
It promotes efficiency and production capacity, increasing LRAS.
