macro theme 2 2.3 Flashcards
What is aggregate supply
Is the total amount of goods and services supplied by an economy over a set period of time
What would occurs when an economy can supply more to their economy (4)
GDP- would increase as supply increases
Inflation 2%- will increase as firms increase prices due to more spending
Unemployment- decrease as firms can supply more so need more employees
BOP- imports may increase if firms need materials from abroad however may decrease if firms supply more
What factors influence the level of supply by an economy (4)
-Costs of production
-levels of investment throughout the economy
-supply-side policies (policies that aim to increase supply by gov)
-availability and efficiency of factors of production
In the short run what is the impact of AS curve
-firms may have some limited flexibility in the availability of their factors of production
What factors determine long-run AS
Technology
Capital
Labour
Rather than price levels
What does long-run AS give an indication of
The productive potential of an economy
what are the influences on SRAS (5)
- supply-side shocks - positive/negative
- cost of capital- investment
- cost of inputs (raw materials)
- exchange rates
- government intervention -(health + safety regulations, corporation tax)
What is the classical LRAS curve (3)
Assumes the economy always operates at full capacity in the long run
Any increase in AD only leads to inflation, not higher output
Wages and prices are flexible ensuring full employment
What is the Keynesian LRAS curves 3 stages?
- Horizontal (spare capacity)-output can rise without inflation
- Upward-sloping (bottlenecks)-some inflation as resources get used
- Vertical (full capacity)- economy at maximum output, only inflation increases
What are the influences on LRAS (6)
- Technological advances
- Relative productivity
- Education and skills
- Government regulations
- Demographic changes and migration
- Competition policy
What are examples of technological advances and what is it
Improvement in technology increases productivity and efficiency
-automation
-AI
-robots
-new machines
What is relative productivity and how it influence LRAS
Productivity- how much is produced per employee
If a country’s productivity increases relative to others is becomes more competitive
Eg- increase in FDI and investment
How does a change in education and skill influence LRAS (3)
-A more skilled workforce will increase labour productivity
-the government also provides different types of training courses to improve the number of skilled workers in the country
-spending money on schools cause me an opportunity cost and takes time for an effect
How does a change in government regulations influence LRAS
-regulations can impact businesses ability to produce efficiently either positively or negatively
-Deregulations = less regulations which attracts more FDI
So if there’s an increase in investment by firms -LRAS shifts right
How does the demographic change and migration influence LRAS
- demographic is the characteristics in one population
-migration is the movement from one area to another
-changes in population size and structure affect the labour force (as more migrate more people look for work but unemployment decreases)
Migration increase there is more workers LRAS shifts right
Ageing population-reduction in workforce
What is the competition policy and how does it influence LRAS (4)
-are policies that promote competition in markets
-prevents monopolies (one firm has over 25% of the market)
-encourages firms to enter the market
-Encourage firms to be more efficient
