Aggergare Supply Flashcards
What is aggregate supply
Measures the volume of goods and services produced each year
( total quantity of goods and services that firms are willing to produce changes in response to price levels in the short run)
What is long run aggregate supply (LRAS)
Long run aggregate supply shows total planned output when both prices and average wage rates can change.
(it is a measure of a country’s potential output and the concept is linked to the production possibility frontier) (PPF)
Long run aggregate supply (LRAS) is determined by the stock of a country’s productive resources and also by the productivity of factor inputs (labour, land and capital).
What are classical economists
Classical Economists believed that markets should be left alone and eventually, in the long run, everyone will be working, all resources will used and production will be at its maximum.
This is because they believed that through supply and demand the market will clear itself.
They emphasised that the government should not intervene because “ the economy will improve in the long run”
What are Keynesian economists
Keynes argued that there will always be unused resources and spare capacity in the economy and that if aggregate demand shifted ,GDP would increase without causing inflation.
• Keynes once joked that “In the long run we’re all dead!”
and so emphasised that government should in fact get nvolved and try and boost aggregate demand in the short run
• The Keynesian model of aggregate supply is perfectly
elastic(horizontal)
If cost change the horizontal part of an ad/as graph will shift so what will cause this shift
