Aggregate Supply

Question 1

Aggregate Supply Definition

Answer 1

Aggregate supply is the total amount of goods and services produced in an economy over a period of time (a year). It shows the total willingness and ability of producers to produce.

Question 2

Bottom part of the AS diagram

Answer 2

This is where current production in the economy sees many resources not being used in the production process. There is lots of spare capacity.

(eg. workers not being employed, or land not being farmed, or capital machines not being used to their full capacity)

Question 3

Middle part of the AS diagram

Answer 3

This is where some resources are becoming more scarce, spare capacity is reduced and bottlenecks develop. (eg. high volume of production causing transport costs to rise) This causes actual prices to rise too.

Question 4

Top part of the AS diagram.

Answer 4

This is where no greater production can occur due to no spare resources being available. Prices are bid ever higher by desperate consumers. Business costs skyrocket. (eg. labour costs rise due to no spare workers).

Inflation is high, and living standards are eroded.

Question 5

Aggregate Supply Policies

Answer 5

These policies look to increase the willingness and/or ability of producers in Australia to produce. They reduce costs or increase resource availability, or reduce bottlenecks, making it easier and more profitable to produce.

Question 6

Government Policies

Answer 6

Examples: Increasing / Decreasing taxes.

These are done to change the level of AD and AS in Australia.

Question 7

RBA Policies

Answer 7

Like government policies, RBA policies also change both AD and AS in Australia.

Examples: change in interest rates