2.3.1 & 2.3.2 Aggregate Supply And Short Run Aggregate Supply

Question 1

Aggregate supply

Answer 1

the volume of goods and services produced in an economy at a given price in a given time period
- represents the ability of an economy to deliver goods and services to meet demand

Question 2

Aggregate supply curve (pic)

Answer 2

slopes up since high prices mean producers want to sell more (short run)

Question 3

Short run AS curve (pic)

Answer 3

straight, upward sloping - higher prices = goods make more output more profitable = enable businesses to expand production by hiring less productive labour

Question 4

Why is short run AS positive?

Answer 4

• all the industry supply curves that are added together to form the curve are upwards
• and if real output is to increase in the short run, firms will have to pay overtime or more money for the quick delivery of raw materials & costs per unit to the firms will rise which will be passed on to the consumer through higher prices (increase real output = increase price level)

Question 5

Movements along AS curve

Answer 5

shift in AD as a new equilibrium point is established

Question 6

Shifts in AS curve

Answer 6

a change in the conditions of supply in the macroeconomy

Question 7

Rising the price level…

Answer 7

expansion of AS

Question 8

Fall in price level…

Answer 8

contraction of AS

Question 9

DIfference between short run and long run AS

Answer 9

Short-run
- Wage rates & price of factors are fixed
- to increase output firms have to pay more to current staff to work more
- overtime costs more which means higher cost =higher prices
- increase output means increase in prices

Question 10

Shift in AS curve (pic)

Answer 10

• increase in cost shifts it inwards/left (AS contracts)
• decrease in cost shifts it outwards/right (AS expands)

Question 11

Factors influencing short-run AS

Answer 11

• changes in costs of raw materials
• changes in exchange rates
• changes in tax rates
• productivity
• wages rate

Question 12

How does the changes in costs of raw materials affect AS?

Answer 12

increased prices = increased business cost = decrease AS

Question 13

How does the changes in exchange rate affect AS?

Answer 13

strong currency makes importing material cheaper

Question 14

How does the changes in tax rate affect AS?

Answer 14

increased prices = increased business cost = decrease AS

Question 15

How does the changes in productivity affect AS?

Answer 15

new tech = more productive = increased AS

Question 16

How does the changes in wages rate affect AS?

Answer 16

increased wage/increased minimum wage through inflation = increased business cost = decreased AS