M 2.3 Short run aggregate supply

Question 1

What does short run mean

Answer 1

at least one factor of production is fixed

Question 2

What is AS?

Answer 2

quantity of goods and services that producers in an economy are willing and able to supply at given levels of pricing

Question 3

WHat is SRAS?

Answer 3

relationship between panned national output and the general price level. Shows how much output the economy can generate in the short term at each price level

Question 4

What causes a movement along the curve in SRAS?

Answer 4

• rise in the general price level should stimulate an expansion of supply
• when prices are falling, production may contract

Question 5

What causes a shift in the SRAS curve?

Answer 5

resource cost of producing goods ans services

Question 6

Why is the SRAS curve upward sloping?

Answer 6

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

Question 7

What are the four causes of SRAS curve shift?

Answer 7

• changes in resource prices
• business subsidies, taxes or regulations
• exchange rate
• supply shocks

Question 8

What is the general cause for inwards shift of SRAS?

Answer 8

rise in raw material prices, energy costs, unit labour cost or increased cost of meeting business regulations

Question 9

WHat is the general cause of outward SRAS shift?

Answer 9

• rise in labour productivity, decline in energy costs

Question 10

What are the four EXTERNAl factors effecting SRAS?

Answer 10

• world oil and gas prices
• energy prices/ costs
• other mineral / metal prices
• foodstuff prices

Question 11

Why are external factors relevent when calculating effectiveness of the UK government policy/

Answer 11

• important to recognise that the performance of UK economy is subject to the infleunce of external factors that UK gov cant control
• fluctuations in world price would affect costs, price level, investment, economic growth, exports/ imports and employment

Question 12

Why is oil price so important?

Answer 12

• source for more then 1/3 of world energy

- transport industry relies on oil

Question 13

WHat could fracking do?

Answer 13

bring oil prices down

Question 14

explain the effect of rising oil prices?

Answer 14

• more expensive for motorists and businesses
• rise in value of oil exports
• increase in exploration and extraction
• renewable energy more economically viable
• rising energy cost bringing up inflation
• Uk exchange rate may rise as we export oil

Question 15

What will an outward shift in AD cause?

Answer 15

rise in output and employment
- household income rises so more spending increases

• inflation

Question 16

Where is equilibrium on a SRAS diagram?

Answer 16

where AD intersects SRAS

Question 17

Explain impact of rise of AD on SRAS graph?

Answer 17

• AD shifts outwards, expansion along SRAS curve
• higher equilibrium price
• cyclical rise in output and employment
• upward pressure on price or inflation
• higher output

Question 18

Explain impact of fall in AD?

Answer 18

• inward shift of AD, contraction along SRAS
• natioanl output falls
• deflation
• could cause recession

Question 19

Explain impact of increase in SRAS?

Answer 19

• outward shift of SRAS, expansion of AD
• higher national output
• fall in price level

Question 20

Explain impact of fall on SRAS?

Answer 20

• inward shift of SRAS, contraction of AD
• lower national output (shrinking economy, stagflation)
• inflation (rise of price level)