LRAS Flashcards
1
Q
What does LRAS and SRAS represent?
A
LRAS: Factors of production
SRAS: Cost of production
2
Q
Explain the shape of the Keynesian LRAS curve.
A
The curve is determined by spare capacity. Keynes argued that when there is spare capacity, inflation remains constant after reaching full employment, then inflation will occur.
3
Q
What is spare capacity?
A
It is when a business is not making full use of its factors of production and there are spare.
4
Q
What is SRAS?
A
A curve affected by the cost of production.
5
Q
Name four costs of production in a business.
A
Rent
Business rates
Wages
Raw materials
6
Q
If the cost of production falls, where do you shift SRAS?
A
To the right.
7
Q
If the cost of production rises, where do you shift SRAS?
A
To the left.
