SRAS Flashcards
What is SRAS
The relationship between planned national output (GDP) and the general price level
What should happen when general price level increases
An expansion of AS - businesses respond to the profit motive
What should happen when general price level decreases
Production should contract - SRAS decreases
What happens when there is plenty of spare capacity
SRAS is elastic
Output Gap is negative
What causes shifts in SRAS
Changes in resource prices
Business Taxes, Subsidies, Regulations, Imported Costs
Costs of Imports
Unexpected Supply Shocks
What happens when wages rise in line with productivity
Unit labour cost will not change
SRAS will not shift inwards
What external factors affect AS
World oil and gas prices
Energy Prices
Commodity Prices
Import Quotas / Tariffs
Keynesian vs Classical Perspective Views on AS
Keynesians treat SRAS and LRAS as the same
Classical / Neoclassical economists distinguish between SRAS and LRAS
Explain Keynesian Aggregate Supply Curve
When spare capacity is high - SRAS will be elastic
Rise in AD can be met easily by increased output
As output increases - elasticity decreases
Examples of factors which could bring a fall in SRAS
Rising wages of workers
Raw material prices increase
Increase on tax on goods and services
Exchange Rates
Productivity
What does a fall in SRAS lead to in the short run
Fall in output and rise in price level in the short run
What does a rise in SRAS lead to
Rise in equilibrium output and a fall in the price level in the short term
