Aggregate Supply

Question 1

What is aggregate supply?

Answer 1

the quantity of goods and servuces that businesses are willing and able to produce at a given price

Question 2

What determines the position of SRAS?

Answer 2

costs of production (increase in costs shifts SRAS left, decrease in costs shift SRAS right)

Question 3

Which factors affect the costs of production?

Answer 3

wage rates, raw materials/ commodity prices, oil price, business taxes (VAT), import prices (SPICEE)

Question 4

What is LRAS?

Answer 4

the level of output where the full production potential of the economy e.g. full employment is being used

Question 5

What determines shifts in LRAS?

Answer 5

• quantity of factors of production
• the quality of factors of production
• productive efficiency of the economy

Question 6

Give the factors which cause LRAS to shift to the right.

Answer 6

• increase in labour productivity
• increase in investment
• improvements in infrastructure
• increase in the quantity of labour (e.g. due to immigration)
• increase in competition
• new resource discoveries

Question 7

Give the factors which cause LRAS to shift to the left.

Answer 7

• a decrease in labour productivity
• capital depreciation
• war/ natural disaster/ pandemic