After school assessment revision Flashcards
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What is aggregate supply ?
The quantity of goods and services that producers are willing to supply at a given price
What is short run aggregate supply ?
Relationship between planned national output and general price level ( SRAS )
What does SRAS show us ?
It shows how much output the economy can generate in the short run at each price level .
What will a rise in general price do to supply ?
This would stimulate an expansion of supply
What will a fall in general price do to supply ?
A contraction of supply would follow
What is the main reason for a cause in the shift in SRAS
The cost of resources to produce goods and services E.G unit wage costs
Why does the supply curve move upwards ?
There is higher profit for G/S.
This makes outputs more profitable and enables business to expand production by hiring extra labour and resources
What causes shifts in SRAS ?
Changes in resource prices - (Wage costs , labour productivity , Raw materials )
Business taxes , subsidies , legislation and import costs - (VAT , costs of meeting regulation , changes in subsidy scales)
Supply shocks - (Natural disaster)
What are some external factors which may affect aggregate supply ?
World oil + gas prices
Energy prices
Food prices
Import tariffs and quotas
What is long run aggregate supply ?
The relationship between price level and real GDP
What is the difference between SRAS and LRAS ?
LRAS does not depend on price , SRAS is upwards sloping instead
What does an outward shift in LRAS show us ?
Shows a rise in productive potential
What can affect the position of the LRAS curve on a diagram ?
Anything that improves the quality and quantity of the production factors
What causes an increase in the LRAS curve ?
Changes in :
supply of labour
stock of national inputs
the efficiency of allocation
quality of factor inputs
tech
institution systems ( banks )
What does an outward shift of LRAS signify ?
An increase in long run potential output and employment
High levels of LRAS signifies real economic growth
What is productivity ?
The measure of efficiency of the production process
What is the equation for output ?
Factor inputs + Factor productivity
Why is high productivity good ?
Higher productivity allows a business to pay higher wages and achieve greater profits too .
How does improved productivity benefit the UK ?
Lower unit costs
Higher gains in AS
Lower unemployment in the long term
More competitive for exports
Higher business investment
What does the Keynesian curve show us ?
SRAS is elastic when spare capacity is high
Elasticity of SRAS falls as output increases
When SRAS becomes perfectly inelastic - the economy is at full capacity
What does an increase in AD do to AS ?
It causes an increase in AS and a higher equilibrium point of national output / increases employment too
What does a decrease in AD do to AS ?
It causes a contraction of and a lower equilibrium level of national output
What does an increase in AS do to the AD curve ?
It causes an expansion of AD and a higher equilibrium level of national output ( could be caused by lower unit costs which helps increase profits )
What are some causes of an inward shift of LRAS ?
Outward labour migration
Decline in productivity via a recession
Loss / reduction in factor inputs
Effects of national output
