Aggregate Supply

Question 1

What does AS show

Answer 1

Aggregate supply shows the quantity of real GDP which is supplied at different price levels in the economy

Question 2

What factors shift short run AS

Answer 2

• The cost of raw materials: If costs of raw materials rise AS will shift inward
• Strength of currency: A stronger currency reduces the price of imports, reducing the cost for business so AS shifts outward
• Tax rates: Increased tax means business costs are down so AS shifts outward

Question 3

Factors influencing long run AS

Answer 3

• Technological advancements: If tech improves the economy can produce goods in larger volumes
• Relative productivity: A more productive labour and capital input will increase output
• Education and skills: If skills and education improve it increases the quality of human capital so it is more productive and able to produce wider variety
• Government regulations: Regulation can limit how much a firm can produce (Red tape)