5.5 - Aggregate Supply

Question 1

Define aggregate supply

Answer 1

Total output of the economy at varying prices

Question 2

Define short run

Answer 2

At least one of the factors of production is fixed

Question 3

Define long run

Answer 3

The period of time where factors of production are not fixed in supply

Question 4

How does increase price level increase output

Answer 4

Paying more of its existing factors of production:
1. Overtime to existing workers
2. For quicker delivery of stock or raw materials
3. Maintenance cost on existing machinery

Question 5

Factors cause shift in SRAS

Answer 5

1. Cost of inputs (supply less output at any given price and curve shift left)
2. Exchange rate (firms import raw materials, component parts, energy) Strong currency leads to cheaper imports, more output supplied at any given price, SRAS shift right
3. Government intervention (corporation tax, subsidy)

Question 6

Factors increasing LRAS

Answer 6

Things that increase the quantity or quality of labour

Improved education,
more immigration,
better technology,
Higher productivity,
government regulations
Demographic changes
Competition policy

Question 7

Factors increasing LRAS

Answer 7

Things that increase the quantity or quality of labour

Improved education,
more immigration,
better technology,
Higher productivity,
government regulations
Demographic changes
Competition policy

Question 8

Define output gap

Answer 8

Difference between actual real gdp and potential real gdp