2.3.2 Short-run AS

Question 1

What are the factors that affect Short-run AS?

Answer 1

/Changes in costs of raw materials and energy
/Change in exchange rates (E/R)
/Changes in tax rates

Question 2

Explain how an increase in costs of raw materials/energy can affect AS?

Answer 2

As the price of input costs rise, fewer goods/services can be produced with the same amount of money. SRAS decreases - shifts left.

Question 3

Explain how a decrease in costs of raw materials/energy can affect AS?

Answer 3

As the price of input costs decrease, more goods/services can be produced with the same amount of money. SRAS increases - shifts right.

Question 4

Explain how an appreciation of E/R can affect AS?

Answer 4

Producers often import raw materials
/Stronger currency = cheaper imports
/Cheaper imports = decrease in input costs
/Lower costs = more output
SRAS increases - shifts right

Question 5

Explain how a depreciation of E/R can affect AS?

Answer 5

Producers often import raw materials
/Weaker currency = more expensive imports
/More expensive imports = increase in input costs
/Higher costs = less output
SRAS decreases - shifts left

Question 6

Explain how a decrease in tax rates can affect AS?

Answer 6

Taxes represent an additional cost for firms
/Decreasing taxes = decrease in costs
/Lower costs = more output
SRAS increases - shifts right

Question 7

Explain how an increase in tax rates can affect AS?

Answer 7

Taxes represent an additional cost for firms
/Increasing taxes = increase in costs
/Higher costs = less output
SRAS decreases - shifts left