2.3.1 Characteristics Of AS And 2.3.2 Short-Run AS

Question 1

Define aggregate supply

Answer 1

The total value of planned output of goods and services firms in the economy are willing and able to produce at a given price level at a given point in time

Question 2

Define short run aggregate supply

Answer 2

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

Question 3

What is assumed in SRAS

Answer 3

In the short run it is assumed that at least one factor of production is fixed

Question 4

Which factor of production is assumed to be most fixed

Answer 4

Capital

Question 5

What does SRAS show

Answer 5

Shows total planned output when prices can change but the prices and productivity of factor inputs are held constant

Question 6

Which factor of production is assumed to be most flexible

Answer 6

Labour as firms may be able to hire more labour or make existing labour work harder in order to meet AD

Question 7

What does the SRAS curve show

Answer 7

Positive relationship between GPL and total planned output when

Question 8

Explain an expansion along the SRAS curve

Answer 8

Rising demand and prices stimulates an expansion of supply.
Producers are assumed to respond to the profit motive when aggregate demand is increasing and the GPL is increasing.

Question 9

Explain a contraction in supply

Answer 9

A fall in tje GPL usually leads to a contraction of SRAS as producers cut back production if demand and prices are falling (lower profit incentive)

Question 10

What causes a shift in the SRAS curve

Answer 10

A change in the costs of production

Question 11

What causes a shift in SRAS

Answer 11

• wage costs
• labour productivity
• key raw material and component prices
• business indirect taxes and subsidies
• cost of imported materials
• supply shocks