2.3.1 Characteristics of aggregated supply

Question 1

definition of aggregate supply

Answer 1

is the quantity of goods and services that producers in an economy are willing and able to supply at a given level of prices in a given time period.

Question 2

How does short-run Aggregate supply link to factors of production

Answer 2

short-run is the period of time in which at least one factor of production is fixed

Question 3

How does long-run Aggregate supply, link to factors of production

Answer 3

The long-run is the period of time in which all factors of production are variable

Question 4

What is short-run aggregate supply (SRAS)

Answer 4

is the relationship between planned national output (GDP) and the general price level

Question 5

with SRAS, a rise in the general price level should …

Answer 5

… stimulate an expansion of aggregate supply as businesses respond to the profit motive.

Therefore if GPL is falling, production may contract

Question 6

What is Long-run aggregate supply

Answer 6

represents the maximum possible output in an economy; it is similar to an economy’s PPF

It represents that maximum output when all factors of production in an economy are fully and efficiently employed.

Question 7

With LRAS, how does this relate to price level

Answer 7

This maximum output level is independent of the price level

Question 8

What are the main factors that cause a shift in LRAS

Answer 8

change in the total quantity/quality of the economy’s factors of production

Question 9

What do Keynesian economist think about Aggregate supply

Answer 9

do not tend to distinguish between short-run and long aggregate supply, preferring instead to just
consider “aggregate supply” as a whole

For Keynesians, there is just one AS curve

Question 10

What do Neo-classical economist think about Aggregate supply

Answer 10

do distinguish between the short run and the long run. Therefore, Neo-classical economists will use a short-run AS curve and a long-run AS curve

i.e. two curves.