Aggregate supply

Question 1

What is AS

Answer 1

The output supply of all goods and services that are produced within an economy

Question 2

What is the main difference between Aggregate supply in the short and long run?

Answer 2

In the short run FoPs fixed but in the Long run FoPs are infinite and extremely flexible. LRAS is AS at full employment

Question 3

What factors affect Aggregate supply in the short run (3)

Answer 3

• Cost of Factors of production
• Exchange rate (if raw materials are imported)
• Government intervention (regulatory rules)

Question 4

What factors affect Aggregate supply in the Long run

Answer 4

Quantity of inputs
- Changes in population for labour
- Better capital inputs (technology)
- Possibly demand factors like investment and consumption

Question 5

What are the different ways to illustrate AS

Answer 5

The neoclassical graph (2 supply curves)
The Keynesian graph (curved supply)

Question 6

What is the Negative output gap

Answer 6

Difference between the equilibrium and the YFE (full employment level of output)