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Economics - January > 7) Aggregate Supply - MMT > Flashcards

7) Aggregate Supply - MMT Flashcards

1
Q

what is aggregate supply?

A

the total value of goods and services produced in an economy

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2
Q

what is the relation between aggregate supply and supply curves?

A

all the individual supply curves for every business/every product added together (aggregated)

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3
Q

Aggregate Supply is the term used to describe the…

A

National Output

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4
Q

The aggregate supply curve shows…

A

the amount of goods that can be produced at different price levels

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5
Q

Aggregate Demand and Aggregate Supply behave in the same way in macro as supply does in…

A

micro

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6
Q

if the price of an individual good or service increases, what opportunity fo firms see?

A

firms see more opportunity for profit so expand output

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7
Q

as price decrease firms…

A

reduce output

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8
Q

AS just multiplies these individual actions by a few billion meaning the same type of effect is felt…

A

nationally as locally, ie a higher price level, higher AS, lower price level lower AS

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9
Q

AS will behave and look differently thsn the micro supply curve when AS is…

A

long run, short run aggregate supply looks the same

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10
Q

the LRAS of an economy is dictated by the…

A

capacity of the economy

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11
Q

the capacity of the economy is determined by…

A

the quantity and quality of the factors of production available within an economy, this is often assumed to be fixed

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12
Q

why is LRAS assumed to be fixed?

A

countries cannot easily increase the amount of land available to them, labour is also difficult, being determined by factors like birth rate etc

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13
Q

because LRAS is assumed to be fixed, LRAS is independant of changes in…

A

the Price Level

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14
Q

what does LRAS look like?

A

it is perfectly inelastic (vertical) line, normally drawn at a point where the factors of production of the country are fully employed , ie operating at full capacity

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15
Q

what does fully employed mean?

A

operating at full capacity

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16
Q

what is Yfe?

A

the full employment level of national output, the level of Real GDP (Y) in the economy when all the factors of production are fully utilised.

17
Q

how can LRAS be demonstrated using a PPF diagram?

A

at any point on the arc line between full output of consumer and full output of capital goods, the economy’s output is maximised

18
Q

it is possible to go beyond LRAS in the short term but…

A

this is not considered sustainable

19
Q

a change in PL will see us either…

A

extend or contract along the AS line

20
Q

A change in the determinants of AS wil…

A

shift the line

21
Q

if AS increases it shifts…

A

right

22
Q

if AS decreases it shifts…

A

left

23
Q

if LRAS is increased then the vertical line shifts…

A

right

24
Q

if LRAS is decreased then the vertical line shifts…

A

left

25
Q

the main factor that shifts SRAS is…

A

costs in the economy

26
Q

when does SRAS shift left?

A

higher costs (eg high inflation) shifts SRAS left

27
Q

when does SRAS shift right?

A

lower costs may shift it right

28
Q

for LRAS what will the shifts depend on?

A

the changes in the quantity or quality of the factors of production

29
Q

what is an example that shifts LRAS to the left or right?

A

1) immigration, quantity of labour shifts LRAS to the right
2) Mass Emigration, shift LRAS to the left

30
Q

what are the 6 reasond that LRAS shifts to the right?

A

1) Increase in Labour Productivity
2) Increase in Investment
3) Increase in Infrastructure
4) Increase in Quantity of Labour
5) Increase in Competition
6) New discoveries

(PIINCQ)

31
Q

what is investment, LRAS?

A

when firms spend money on capital goods, wg technology advances

32
Q

how to increase infrastructure? LRAS

A

eg transport - new roads/airports
-> reducing long run costs for all businesses in the economy
-> transporting goods and services becomes quicker and cheaper, improving productive efficiency
-> quantity and quality of capital stock improves

33
Q

how do you increae the quantity of labour? LRAS

A

(size of the labour force, not unemployment)
eg immigration, incentives -> eg refucing benefits or cutting in income tax
(inactive become active)

34
Q

how do you increase competition? LRAS

A

1) through productive efficiency
eg privatisation, deregulation, trade, liberalisation, competition policy
2) reduce costs as much as possible to beat rivals

35
Q

how to find new resource discoveries? LRAS

A

through finding land

36
Q

why would LRAS shift to the left?

A

1) decrease in Labour Productivity
2) Decrease in Mass Capital Depreciation
3) War, Conflict, Natural Disaster that destroys infrastructure
4) Deaths, health crisis, hysteresis (long term unemployment, dropout), immigrants leaving

Economics - January (15 decks)

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