aggregate supply Flashcards
aggregate supply definition
the total amount of goods/services that all firms in an economy are willing to sell at a given average price level in a given time period
short run classical AS
upward sloping line, reflecting that the higher the average price level the more firms will be willing to sell. this response occurs in the short run as a result to changes in the costs of raw materials etc.
factors that affect SRAS
world oil and gas prices
energy prices/costs
other mineral/metal prices
foodstuff prices
tariffs/quotas
long run aggregate supply classical
the total numer of goods and pervices that can be produced at FULL EMPLOYMENT of all factors of production. used by classicists as they believe that in the long run production will always be maximised.
keynsian LRAS
keynes believes that for LRAS, when an economy is growing out of a recession with a low GDP, there will be no inflation because not all FOPs are being used (spare capacity), so higher prices arent needed to entice people to work. then after more growth the cost of production will rise slowly as spare capacity is used up, until eventually maximum output is reached and is perfectly inelastic to price level.
factors impacting LRAS
any changes in the quality or quantity of factors of production
higher productivity of labour and capital (technology)
increased labour market participation
gains from innovation and enterprise
capital investment
what diagram is the same as a PPC diagram
classical LRAS
