lesson 9- aggregate supply (SR and LR) Flashcards
what is AS?
the total quantity of goods and services that producers in an economy are willing and able to supply at a given price and in a time period
draw SRAS (short run aggregate supply)
upward sloping
what is the ‘short run’?
when wage rates and other factor inputs (cost of materials etc) are fixed
-firms are unlikely to take on extra workers, so they work overtime. This increases costs, so the price of product rises to counteract it.
why does GDP increase when price level does on a SRAS curve?
profit motif
a change in what shifts the SRAS curve left and right?
cost of production, as cost increases, the firm can produce less GDP for the same level of price, so the curve shifts left.
how does the price of raw materials affect the SRAS curve?
a fall in prices of raw materials means the firm can produce more product for the same price, so SRAS shifts right (increases)
how does the exchange rate affect the SRAS curve?
id exchange rates fall, price of imported goods rise, so cost production increases, and SRAS shifts left
what is productivity?
the output per unit employed
draw an increase and decrease in SRAS
increase= right
decrease= left
what is the classical view of AS?
that AS can be looked at in the short run and long run
what is LRAS?
the maximum output of the economy
draw a LRAS curve, with increase and decrease
straight up
left=decrease
right=increase
what shifts LRAS?
QQCELL
quality and quantity of capital, enterprise, land and labour
what happens when the equilibrium (SRAS and AD) occurs to the left of SRAS as a result of AD decreasing?
the economy is not at it full potential
-recessive gap
-government intervenes, decreases wages so AS shifts right, and equilibrium is back on LRAS
what happens when the equilibrium (SRAS and AD) occurs to the right of SRAS as a result of AD increasing?
-inflationary gap
-inflation causes wages and resource prices to increase, decreasing SRAS, so it shifts left and equilibrium is on LRAS
