Aggregate Supply Flashcards
What is the definition of Aggregate Supply?
the total supply of goods and services available to a particular market from producers
Why is the SRAS curve upward sloping?
the quantity supplied increases when the price rises
What causes an expansion in aggregate supply?
improvements in productivity and efficiency
What causes a contraction in aggregate supply?
shocks to input goods or labor
What are the three conditions (shifters) of SRAS?
- Changes in costs of raw materials and energy
- Changes in wage rates
- Changes in tax rates
Why does AS classically take a different shape in the short run to the long run?
money wage rates, factor prices (prices of the factor of production) and the state of technology are fixed and can’t change
Describe the elasticity
describes the responsiveness of one variable to changes in another variable
Give 4 factors which influence the position of LRAS
- labour changes
- capital changes
- natural resources
- technology changes
Give 3 reasons why the economy may come to rest at a point below full capacity
- pessimism among consumers and investors along with other psychological factors
- economic factors like price and wage stickiness
- financial factors such a liquidity traps
Explain whether Keynesians consider wages to be sticky upwards or downwards
wages are often said to be sticky-down, meaning that they can move up easily but move down only with difficulty
