Aggregate supply

Question 1

Define aggregate supply

Answer 1

• total output that firms in an economy are willing to and able to supply
• at different price levels
• given period of time

Question 2

Why is the SRAS curve upward sloping?

Answer 2

• based on firm’s profitability
• increase in price level, output price increases
• unchanging resource prices
• firm’s profits increase/production becomes more profitable
• firms increase profits, result in positive relationship btw price lvl and quantity of real GDP

Question 3

Factors that cause SRAS to shift

Answer 3

1. Changes in COP:
   - change in wages
   - changes in non-labour resource prices
2. Changes in indirect taxes

Question 4

changes in wages (Shift in SRAS)

Answer 4

• wages increase with price lvl constant
• firm’s COP rise
• leftward shift of SRAS
• vice versa

Question 5

changes in non-labour resource prices

Answer 5

• e.g. price of oil, equipment, capital goods
• increase in price, COP increases
• leftward shift

Question 6

Changes in indirect taxes

Answer 6

• include GST
• increase, firms COP increases
• SRAS shift left
• vice versa

Question 7

factors that affect keynesian AS curve

Answer 7

• changes in quantity and quality of labour

- changes in lvl of tech

Question 8

Changes in quantity and quality of labour (Keynesian AS)

Answer 8

• of country resources (LLCE)
• increase in stock in resources, greater productive capacity in economy, rightward shift e.g. foreign workers
• increase quality/ productivity of the labour force thru trng, education, AS shift rightward

Question 9

Changes in lvl of technology (Keynesian AS)

Answer 9

• improvement in tech
• economy able to produce higher lvl of output as productive capacity increases (more efficient)
• increase in AS