2.3.1, 2.3.2, 2.3.3, 2.4.3 - AS, SRAS, LRAS, output

Question 1

Difference between supply and demand and AS and AD

Answer 1

Supply and demand:
Looking at a particular market.
Axes are price and quantity.

Aggregate supply and aggregate Demand:
Looking at the entire economy
Price level and real gdp.

Question 1

Why are wages ‘sticky’ in the short run.

Answer 1

long term employment contracts and minimum wage laws, make it difficult to adjust in the short run.

Question 2

Why does the sras curve slope upwards.

Answer 2

Price level ↑, real cost of labour ↓, because of sticky wages. Therefore workers are more utilized leading to larger ouput. causing an increase in real gdp and output.

Question 3

What is aggregate supply

Answer 3

total planned output of all goods and services that firms within an economy are willing and able to supply at a given price level in a given amount of time.

Question 4

What causes shifts in sras

Answer 4

change in unit cost of production

Question 5

What causes movements along sras

Answer 5

changes in price level

Question 6

In the long run wages are said to be ….. and labour markets achieve full ….

Answer 6

flexible
employment

Question 7

Real gdp in the long run classical model is said to be determined by

Answer 7

Quantity and quality of factors of production and technology.

Question 8

Increases / right shifts in classical lras are caused by (2)

Answer 8

↑ quantity or quality or factors of production. Improvement in technology.

Question 9

Decreases / left shifts in classical lras are caused by (2)

Answer 9

↓ quantity or quality of factors of production, deterioration in production tech.

Question 10

Shifts in lras can be representend on a ppf in what way.

Answer 10

Outward shifts on the ppf.

Question 11

When would you use sras as oppose to lras

Answer 11

analyse the impacts of a change in cost of production

Question 12

When would you want to use lras vs sras

Answer 12

impacts of a change in productive
potential or long run economic growth

Question 13

What are classical LRAS assumptions (3)

Answer 13

Wages are flexible
Labour market is at full employment
Economy operates at productive potential

Question 14

What are keynesian LRAS assumptions (3)

Answer 14

Wages may still be rigid
Mass unemployment may exist
Economy may operate below productive potential

Question 15

What causes movement along the horizontal beginning of the Keynesian LRAS curve (2)

Answer 15

At low RGDP there is Spare capacity , firms can easily increase output without increasing cost of production. Output increases whilst price level remains constant.

Question 15

What causes movement from the horizontal part to the beginning of the upward part of the curve

Answer 15

Spare capacity declines, skilled workers become scarce, Firms can increase output but price level increases and higher price is passed on to consumers causing upward movement.

Question 16

What causes movement along the vertical part of the keynesian LRAS Curve

Answer 16

Economy reaches productive potential: Price level increases due to inflation without increase in output, LRAS becomes vertical.

Question 17

What causes Shifts in LRAS

Answer 17

Changes in productive potential such as:
Technological advancements and changes in labour force skills or geopolitical events.