Aggregate Supply Flashcards
What is aggregate supply?
Total quantity of goods and services produced in an economy(real gDP) over a particular time period at different price levels
What is the short run aggregate supply curve?
Shows the relationship between the price level and the quantity of real output produced by a firm when resource prices don’t change
What’s re the resource prices?
Labor: if wages increase SRAS shifts left
Other resources: oil prices, resources used for energy.
How do governmental actions affect SRAS
Business taxes: are treated like a cost of production higher taxes shift curve left, lower taxes shift curve right
Subsidies: money given by gov to produce goods. Subsidy implemented would shift curve rights, subsidy removed would shift curve left
What is a supply shock and how does it affect SRAS curve
Major events that dramatically affect supply
Weather-hurricane causes SRAS curve to shift left
What is full employment
Equilibrium real GDP=potential GDP
Unemployment=natural rate of unemployment
No recessionary it inflationary gap
What is a recessionary gap
Equilibrium real GDP is less than potential GDP
Unemployment is greater than natural rate of unemployment
Firms require less labor for production-not enough total demand in the economy
What is an inflationary gap?
When equilibrium real GDP is greater than potential GDP
Unemployment is less than the natural rate of unemployment
Firms need to produce more output
Increase labour-too much total demand in the economy
What is stagflation?
This is where SRAS shifts left
The price level rises but real GDP falls which is accompanied by an increase in unemployment
