Aggregate Supply Flashcards
What are the two shaped of long run aggregate supply
.
Keynesian and classical
What factors influence long run AS
- technological advances
- changes in relative productivity
- changes in education and skills
- changes in government regulations
- demographic changes and migration
- competition Policy
Hodges technological advances influence long run AS
If more money is spent on improving technology, the economy can produce goods in larger volumes or improve the quality of goods and services produced.
How does changes in relative productivity influence AS.
A more productive labour and capital input will produce a larger quantity of output with the same quantity of input
How does changed in education and skills influence long run AS
This improves the quality of human capital, so it is more productive and more able to produce a wider variety of goods and services.
How does changes in government regulations influence long run AS
Government regulation could limit how productive and efficient a firm can be if it is excessive. This is sometimes referred to as ‘red-tape’.
How does demographic changes and migration influence long run AS
If there is net inward migration and the majority of the population is of working age, the size of the labour force is going to be significant, which means the economy can increase its output.
How does competition policy influence long run AS
A more competitive market encourages firms to be more efficient and more productive, so they are not competed out of business. Governments can use effective competition policy to stimulate this in the economy.
What factors influence short run AS
Changes in costs of raw material and energy
Changes in exchange rates
Changes in tax rates
