Aggregate Supply

Question 1

Why does the SRAS curve slope upwards?

Answer 1

if a firm wishes to increase output they have to pay more to acquire more factors of production
as price levels rise firms have more incentive to supply to the market and hence increase production

Question 2

why is the free market LRAS curve perfectly inelastic

Answer 2

free market economists believe that the economy will always operate at full capacity in the long run as long as price levels can adjust

Question 3

what causes a shift in LRAS

Answer 3

change in quantity or quality of the factors or production:
- spending on education
-investment on capital goods
- technological advancements
-change in the working population

Question 4

On a keynesian LRAS what is:
-0 to Y1
-Y1 TO Yfe
-Yfe

Answer 4

• spare capacity and significant unemployment of resources. Producers can increase output without having to pay lots more for the factors of production
  -GDP increases as the economy moves close to full employment. Factors of production become more expensive
  -there is no spare capacity as the economy is at full employment. The curve becomes perfectly inelastic

Question 5

what is aggregate supply

Answer 5

the total of all planned production in the economy at each price level

Question 6

what causes a shift in SRAS

Answer 6

-change in wage costs
-change in the cost or raw materials
-change in the exchange rate

Question 7

what are the 2 types of LRAS

Answer 7

Keynesian and Free Market (classical)