Aggregate Supply

Question 1

What is the short-run aggregate supply curve

Answer 1

A curve showing how much more output firms would be prepared to supply in the short run at any given overall price level

Question 2

What is the short-run

Answer 2

A period where the costs of resources (e.g. wages) are fixed

Question 3

Why is the SRAS curve upward sloping

Answer 3

If prices of output rise and costs of production are fixed - firms will make more profit and therefore supply more

Question 4

What is the primary factor that leads to a shift in SR aggregate supply

Answer 4

Costs of production faced by firms

Question 5

Factors which affect costs of production

Answer 5

Resource costs
Exchange rates
Government intervention

Question 6

How does an increase in the cost of inputs affect AS

Answer 6

An increase in the cost of inputs - increase in costs of production = decrease in profit = decrease in supply

Question 7

How does the exchange rate affect AS

Answer 7

Depreciation of the £ = increased cost in £s when buying goods from abroad = increase in COP = decrease in AS

Question 8

How does government intervention affect AS

Answer 8

Government intervention usually leads to a decrease in aggregate supply.
E.g new health and safety legislation = increase in COP = decrease in AS

Question 9

What is the multiplier affect

Answer 9

The multiplier effect refers to the increase in expenditure, leads to further successive rounds of additional expenditure

Question 10

Name 3 factors which reduce the multiplier effect

Answer 10

Savings
Tax
Imports

Question 11

What is mps

Answer 11

Marginal propensity to save - what % of income is saved

Question 12

What is mpt

Answer 12

Marginal propensity to tax - what % of income is taxed

Question 13

What is mpm

Answer 13

Marginal propensity to import - what % of extra income in spent on imports

Question 14

What is mpw

Answer 14

Marginal propensity to withdraw

Question 15

How to calculate mpw

Answer 15

mps + mpt + mpm

Question 16

The final increase will depend on the value of the multiplier (k) where k=

Answer 16

K= 1 / mpw

Question 17

The final change in real GDP will equal

Answer 17

K x initial injection of spending
Or
(1 / mpw) x initial injection of spending

Question 18

What causes shifts of AS in the long run

Answer 18

Anything that impacts on the PRODUCTIVE CAPACITY of the economy will result in a shift in the LRAS

Question 19

The productive capacity and therefore LRAS is directly influenced by changes in the

Answer 19

Quality of resources

Quantity of resources

Question 20

An increase in the quality or quantity of a nation’s resources will __________ the LRAS of the economy

Answer 20

Increase

Question 21

What 3-4 factors could increase in quantity or quality

Answer 21

Land
Labour
Capitol
(Enterprise)

Question 22

An increase in the quality of the factors of production _________ the productivity of the economy and therefore the maximum possible output

Answer 22

Raises

Question 23

Define productivity

Answer 23

Output, or production of a good or service per worker per unit of a factor of production in a given period of time