4.2.2.5 - SRAS

Question 1

What is aggregate supply

Answer 1

The total level of output of the economy at a given price level at a given pint in time

Question 2

What is SRAS

Answer 2

The amount of output that can be supplied when at least one factor of production is fixed

Question 3

List the factors can cause a shift in SRAS

Answer 3

• wages
• raw materials
• labour productivity
• interest rates
• taxation

Question 4

Why does a shift in SRAS occur

Answer 4

If there is a change to any of the costs of production the SRAS curve will shift in/out

Question 5

How does a change in wages lead to a shift in SRAS

Answer 5

If wage rates increases, the production becomes less profitable so firms will reduce their output, leading to a leftwards shift in of SRAS

Question 6

How does a change in raw materials lead to a shift in SRAS

Answer 6

If the cost of raw materials increases, the profitability of production if reduced, this means firms are less willing to supply output, so there is a leftwards shift in of SRAS

Question 7

How does a change in labour productivity lead to a shift in SRAS

Answer 7

If productivity of labour increases, then the cost er unit of output falls which means firms will find it more profitable to supply greater quantities of output. Firms will be more incentivised to produce more leading to a rightwards shift out of SRAS

Question 8

How does a change in interest rates lead to a shift in SRAS

Answer 8

A change in interest rates will alter the price firms pay to import materials, so if interest rates rise imports are made more expensive so profitability is reduced, a leftwards shift of SRAS will occur

Question 9

How does a change in taxation lead to a shift in SRAS

Answer 9

Indirect tax rates increasing affects the firms costs of productions and subsidies reduce the costs of production