2.3 - Aggregate Supply Content Flashcards
2.3 - Aggregate Supply
What is short run aggregate supply?
The total amount of output in the economy at any given price at a moment in time. (cost of production).
2.3 - Aggregate Supply
Why is the (classical) SRAS curve upward sloping?
To increase AS, this takes time - e.g. to build new facilities.
∴ ↑ AS, ↑ costs
2.3 - Aggregate Supply
Classical LRAS graph:
Causes of AS-led growth:
Quantity + quality of fop: CELL
Improved productive efficiency (e.g. due to competition).
2.3 - Aggregate Supply
Why is keynesian LRAS graph curved?
As AD increases, more pressure is put on FoP, causing increased prices.
Bottlenecks e.g. not enough skilled labour.
Diminishing returns to production.
2.3 - Aggregate Supply
What is an outward shift of the Keynesian LRAS curve equivalent to?
An outward shift on a PPF
2.3 - Aggregate Supply
Give 6 factors that could shift LRAS outwards:
- Tech. advances.
- Increase in relative productivity.
- More skilled workforce / education to improve occupational mobility to reduce structural unemployment.
- Change in govt. regulation.
- Demographic changes + migration.
- Policies inc. competition (inc quality + lower prices).
2.3 - Aggregate Supply
How could an increase in the UK’s relative productivity shift LRAS outwards?
It could encourage investment into production of that good.
Also increases quality of labour / quality of FoP.
2.3 - Aggregate Supply
What is hysteresis?
The economy never fully recovers from a deep recession.
Loss of potential employment, as workers become discouraged, natural rate of unemployment increases.
Inward shift in LRAS.
2.3 - Aggregate Supply
What are the factors affecting SRAS? (CREST)
Cost of raw materials
Regulations
Exchange rates
Supply Shocks
Taxes
2.3 - Aggregate Supply
Keynesian LRAS graph:
