Determinants of SRAS

Question 1

SRAS

Answer 1

Total planned output when prices can change but the prices and productivity of factor inputs and the state of technology are held constant

Question 2

LRAS

Answer 2

Total planned output when both prices and average wage rates can change- a measure of the countries potential output, linked to ppf

Question 3

Why is the SRAS curve upward sloping?

Answer 3

Higher prices for goods and services make output more profitable and enable businesses to expand production by hiring extra labor and other resources

Question 4

The main cause of a shift in the curve

Answer 4

Change in business costs:
- changes in unit labour costs (wage costs adjusted for productivity)
- commodity prices
- changes in other production costs eg. rental
- exchange rates cause fluctuations in import prices
- government tax and subsidies
- temporary non economic shocks eg. floods, political crisis
- changes in import tariffs/ quotas

Question 6

Common error: changing VAT rates affect…

Answer 6

SRAS not AD/LRAS