The Determinants of Short-Run Aggregate Supply

Question 1

What does ‘aggregate’ mean?

Answer 1

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

Question 2

What is in the X and Y axis of an SRAS curve?

Answer 2

X- RNO

Y- Price level

Question 3

Which way does an SRAS curve go?

Answer 3

Diagonally right

Question 4

What is meant by short-run?

Answer 4

In the short-run it is assumed that all factors of production are fixed
- Labour can be an exception as you could hire more labour or make the existing labour work harder
Increased costs of production lower SRAS

Question 5

What is classed as an expansion?

Answer 5

A rise in price leads to expansion- right

Question 6

What is classed as a contraction?

Answer 6

A fall in price leads to contraction- left

Question 7

What factors affect SRAS?

Answer 7

• Wages- firms may substitute labour for capital, or employ less
• The Price of Raw Materials- Higher raw material prices will increase the costs of production and reduce SRAS
• Productivity- The productivity of land, labour and capital can change in the short run
• Taxes and Subsidies- An increase in business tax rates, an increase in business subsidies will lower costs of production and SRAS will increase
• Exchange Rates and Imports- If the currency strengthens, this makes purchasing those raw materials relatively cheaper and SRAS will increase

Question 8

What does an increase in the costs of production look like on the SRAS curve?

Answer 8

Moves left

Question 9

What does a decrease in the costs of production look like on the SRAS curve?

Answer 9

Moves right