Aggregate Supply Flashcards
Short run aggregate supply
Shows Total planned output, when prices can change but the prices and productivity of factor inputs are held constant
Long run aggregate supply
Show total planned output when all factors are variable
Only way to increase output in short run
Overtume or more shifts
Factors that shift short run aggregate supply curve
Employment cost-wages,employment taxes
Cost of other inputs - commodity prices, raw materials
Impact if government- tax
If there is a shift in the short run agrregate supply what does it relate to
Always costs
What model is the long run aggregate supply curve
Classical model
Long run aggregate supply curve
Aggregate supply is straight line up, assumes that we always return to full employment
X axis is potential level of real national output in ling run
What does outward shift of LRAS snow
A rise in production potential
Factors that affect long run aggregate supply
Productivity
Rise in output per person employed
Demand and supply side
Capital investment
Productivity
Efficiency of production process
Output equation
Factor inputs (land labour capital) +factor productivity (efficiency) =output
Long run determinant of economic growth and inflation
Productivity
Higher productivity higher profit
Fall in productivity higher busienss costs
Causes of shifts in long run aggregate supply
Improvement in productivity
Increase in stock of capital and lanour resources cause curve to shift out
Policies to increase long run aggregate supply
Expanding labour supply- improve work incentives, inward labour migration, ageing population
Increased productivity of labour
Expand capital stock
Aggregate supply shocks may occur when
Sudden ruse in oil or gas or other essential inputs
New production technology
Change in movement of migrant workers
