Aggregate Supply Flashcards
LRAS
The productive potential of an economy over a SPOT
What does an outward shift in LRAS show and what is it caused by?
Shows a rise in productive potential and is caused by an increase in the quality and quantity of FoPs
Changes in GDP caused by (5)
• Education and training
• Investment in Capital
• Technological advances
• Improved work practices: lean production
• Changes in Gov policy: removal of business regulation
Aggregate Supply
The total planned output within an economy over a SPOT
What does AS show?
How much output the economy can generate in the short-term at each price level.
A rise in the general price level should stimulate an expansion of supply, when prices fall production may contract.
Shifts in SRAS is caused by
Cost of Production
COP changes in recourse prices (input)
(3)
• Energy
• Raw Materials
• Wages
Business changes that effect SRAS (4)
• VAT, environment charges, employed taxes
• Changes in supply of government subsidies
• Business rates and cost of new laws
• Cost of imports
A boost in Labour productivity will have a positive effect on (7)
• Inflation
• Economic growth
• Unemployment
• Balance of trade
• Spare capacity
• Business investment
• Government fiscal balance
Aggregate Supply
The total panned output within an economy over a SPOT
What does SRAS show?
It shows how much output the economy can generate in the short term, price and supply have a positive relationship.
What causes shifts in SRAS? (2)
• COPs
• Business environment: taxes, subsidies, regulations and cost of imports
What is SRAS determined by?
COPs
What is LRAS determined by?
The capacity of the economy
