Aggregate Supply Flashcards
What is Aggregate Supply?
The total volume of goods and services that all suppliers have produced and supplied
over a period of time in an economy.
What is the Production Possibility Frontier/Curve?
A curve showing the different combinations of goods and services that the economy can possibly produce with the available factors of production at a given period of time.
What is productive capacity?
The point at which the economy is supplying the maximum possible output at that period of time. All relevant factors of production are being employed and productivity is maximized.
What is the shape of the New Classical Short Run Aggregate Supply Curve?
Upward sloping since an increase in general price level causes firms to supply more, thereby increasing Aggregate Supply.
What is the shape of the Keynesian Aggregate Supply Curve?
Initially horizontal when there is spare capacity in the economy, upward sloping when the economy is nearing full capacity and vertical when the economy is at full capacity.
What is the impact of an increase in quantity of land, labour, capital and enterprise?
Increase in Aggregate Supply (direct relationship)
What is the impact of worsening quality of land, labour, capital, enterprise?
Decrease in Aggregate Supply (direct relationship)
What is the impact of increase in cost of production?
Decrease in Aggregate Supply (inverse relationship)
What is the impact of improvement in technology?
Increase in Aggregate Supply (direct relationship)
What is the impact of productivity growth?
Increase in Aggregate Supply (direct relationship)
What is the impact of appreciation of the AUD?
Increase in Aggregate Supply (direct relationship)
What is the impact of unfavourable weather conditions or disruptions?
Decrease in Aggregate Supply (direct relationship)
What are the 8 factors influencing Aggregate Supply?
General price level, quantity and quality of factors of production, production cost, technological progress, productivity growth, exchange rates and climatic conditions.
What is an assumption of the New Classical view?
In the short run, wages are rigid but prices are not. In the long run, both wages are prices are not rigid.
What is an assumption of the Keynesian view?
In the short run and in the long run, wages and prices may be rigid.
