2.3.2 + 2.3.3 - Short and long run AS (Classical)

Question 1

What are assumptions made about the SRAS curve

Answer 1

period where prices of factors inputs are fixed and productivity is held constant

Question 2

Why does the SRAS slope have a upwards, shallow gradient

Answer 2

Upwards because costs of production are fixed so an increase in price will increase profit (elastic)
Slight slope because there will be some increased costs like overtime payments

Question 3

What does the shape of the SRAS curve mean for firms

Answer 3

Firms will work their workforce harder rather than hiring

Question 4

What are shifts in the SRAS caused by

Answer 4

changes in…
wage rates
commodity prices
exchange rates
indirect taxes
subsidies

Question 5

What assumption is made about the LRAS curve

Answer 5

markets are flexible they always clear

Question 6

Why is the LRAS curve vertical

Answer 6

there is always full employment as wage rate is in equilibrium, whatever price level output is always YFE

Question 7

What causes shifts in the LRAS

Answer 7

factors that affect productivity
education and training
tech
regulations
policies
specialisation
incentives to work

Question 8

How does the LRAS classical curve counter Keynesians view

Answer 8

K- markets don’t clear quickly, may take yrs to return to YFE as wages are sticky downwards due to min wages etc and as resources aren’t perfectly mobile
C- markets clear