Aggregate Supply Flashcards
1
Q
Define aggregate supply.
A
Aggregate supply is the total supply within the economy, of ALL industry.
2
Q
How do we increase output in the short run?
A
Workers do overtime.
3
Q
List the causes of a shift in the aggregate supply curve.
A
- Change in taxation (lower taxes increases production)
- Change in cost of raw materials
- Change in wage rate
- Improvements in technology
4
Q
What does the classical model say about supply?
A
It is fixed at full employment and can only be shifted left/right in the next long run.
5
Q
What does the Keynesian model say about supply?
A
- We do not always return to full employment; therefore, we have excess capacity in the industry
- Wages don’t always fall, business’ do not always employ more people; meaning output is not maximized
- Price doesn’t change because of spare capacity (unemployed resources)
6
Q
What can cause an increase in supply?
A
- Government policy
- Change in productivity (working practices)
- Increase in size of workforce