The Characteristics of Aggregate Supply and SRAS

Question 1

What is meant by short-run?

Answer 1

• The period of time in which at least one factor of production is fixed.

Question 2

What is the definition of SRAS?

Answer 2

• The amount that will be supplied when at least one factor of production is fixed.

Question 3

What is meant by long-run?

Answer 3

• The period of time in which all factors of production are variable.

Question 4

What is LRAS?

Answer 4

• The amount that will be supplied when all the factors of production are variable, equivalent to the productive potential of the economy.

Question 5

What is the definition of Aggregate Supply?

Answer 5

• The total value of output of the economy at a given price level at a given point in time.

Question 6

What does a rise in the price level lead to on the SRAS Curve?

Answer 6

• It leads to an expansion.
• Changes to AD lead to movements along the SRAS Curve.
• Therefore, a fall in the price level leads to a contraction in SRAS.

Question 7

How are the axis labelled on a SRAS Curve?

Answer 7

• X-axis : Real National Output.
• Y-axis : Price Level

Question 8

What are the factors that cause a shift in the SRAS?

Answer 8

• Changes to costs of production (Wages, Raw materials, Labour productivity, Interest rates).
• Changes to taxation rates that affect firms, subsidies and imported costs (Corporation tax, VAT)
• Supply shocks : Natural disasters or pandemics.
• Tariffs and Quotas : Certain conditions or tax on imports.
• Price of commodities : standardised products.

Question 9

What would an increase in the cost of production lead to the SRAS Curve?

Answer 9

• Inward shift.

Question 10

What would a decrease in the cost of production lead to the SRAS Curve?

Answer 10

• Outward shift.