Aggregate Supply Flashcards
What is aggregate supply?
The total amount of supply in an economy. It is made up of 5 main factors, consumption, investment, Government spending and imports - exports.(C+I+G+(X-M))
What is the formula for aggregate supply
C+I+G+(X-M)
Consumption + investment + government spending + (imports - exports)
Distinguish between a shift of the AS curve or a movement along the AS curve
A shift demonstrates a reduction or an increase in aggregate supply
A movement along the aggregate supply curve suggests a change in price of the supply.
Factors which influence short term aggregate supply
Tax changes - UK cuts tariff quotas after brexit
Natural disasters - Saudi Arabia Kissel attacks on oil plants
Exchange rates - Pound being more valuable than the dollar making US exports much more competitive
Change in costs of raw materials and energy - 20% rise in the price of oil
Draw the short run AS curve
A basic demand and supply diagram
What are the two different shapes of the long run aggregate supply curve and can you draw these?
The Keynesian LRAS curve - A A horizontal line which curves upwards in an inverted J like manor
The classic LRAS curve - Vertical line
Factors which influence LRAS
Demographic changes - 715000 migrants in the year ending march 2020
New government regulations - Tax laws, Trumps protectionist tax laws
Technological advances - The UKs main export is the nuclear reactor
Availability of scarce resources - Prices rose 20% in 2019.
Change in education and skills - Government increasing spending on schools in the budget.
How do factors affect short run aggregate supply.
Cost of raw materials and energy increase, aggregate supply decreases
Value of UK Exchange Rate increases, SPICED
Tax rate goes up onto imports, AS decreases, vice versa.
How do factors effect long run aggregate supply
Technological advances means that firms can produce more supplies, LRAS increases
Change in relative productivity, workers not producing as much supply, LRAS decreases , vice versa
Changes in education and skills, improves ability to produce, LRAS increases
Government tighten regulations on fossil fuels, LRAS decreases
Immigration increases, increased supply of labour LRAS increases.
Why use the Keynesian graph and recall what a increase AD causes In the macro economic objectives.
The Keynesian graph can illustrate almost all of the Macro economic factors
An increase in economic growth Sustainability would worsen Unemployment would decrease Inequality gap would increase Inflation would increase Government Debt would improve Balance of payments would worsen in the UK
