Macro 5 - Aggregate supply Flashcards
Aggregate supply definition
Total value of goods + services produced in an economy over a given time period
What does the keynesian aggregate supply curve look like?
What is the first main section of the AS curve?
- When output is low, and unemployment is high, firms can increase output without an increase in prices.
Why can firms increase output without an increase in prices when output is low and unemployment is high?
Because, at low levels of output the AS is greater than AD which means there is excess stock left over, suggesting there is a lack of demand, firms lay off workers and surplus stock means prices will fall.
What is the second section of the AS curve?
As output increases, a point is eventually reached that any further output will be met by an increase in prices
Why is there a point on the AS curve that any further output would result in an increase in prices?
As demand for goods and services increase, firms hire workers due to derived demand and unemployment decreases. Eventually, factors of production become scarce, and costs must rise.
What is the third section of the AS curve?
Eventually AS reaches full capacity, which means output cannot be increased without increasing prices, there will be no spare capacity left.
What does the vertical / Neo - classical LRAS curve look like?
What does the Neo classical economists believe about the factors of production in an economy.
Neo classicals believe that the factors of production are all fully employed and there is no spare capacity in an economy.
How did the neo-classicals believe that you can produce more goods and services in the short run?
By getting employees to work overtime.
Why is the SRAS curve upward sloping?
When at higher prices, firms could sell more for greater profits.
What assumption is the SRAS Short run aggregate supply curve rely on?
That firms can temporarily increase output by employing more workers.
What does a shift in AS mean?
the total output producers are willing and able to supply changes at any given price level.
What are the main factors that cause SRAS to shift in the short run
costs of production like raw materials, wages and indirect taxes
How does wages affect costs of production?
Wages increase, so costs of production increase, wages form largest proportion of total costs, SRAS curve shifts left
