Lesson 19 - Long run aggregate supply Flashcards
What does the short run aggregate supply assume?
The short run aggregate supply assumes that the level of capital is fixed.
Although capital is fixed, what are you able to increase in the short term?
The existing factors of production, for example workers doing overtime.
What can be increased in the long run aggregate supply curve?
The amount of capital
What is the long run aggregate supply curve determined by?
The size of the workforce, the total capital, the levels of capital, the levels of education and labour productivity.
How is the long run aggregate supply line shown?
The long run AS line is shown as a vertical line showing the total output if all resources are fully employed. It represents a point on the Product Possibility Curve.
What does the long run aggregate supply line show?
The long run aggregate supply line shows the total output if all resources are fully employed.
The long run aggregate supply line represents a point on which curve?
The Product Possibility Curve
What does an outward shift in the long run aggregate supply line show?
An outward shift in the long run aggregate supply line shows a rise in productive potential.
If the GDP of an economy is below the long run aggregate supply potential, is it under-performing or over-performing?
Under-performing
The economy is well below its productive capacity
Unemployment is likely to be high
As the production and GDP of an economy increases what is the likely impact on the rate of inflation?
The rate of inflation will increase
What happens when the economy reaches its full production capacity?
The short run aggregate supply curve becomes vertical and parallel’s the long run aggregate supply curve.
What are the three ranges of the aggregate supply curve?
The Keynesian Range
Intermediate Range
Classical Range
