Theme 2: Aggregate Supply Flashcards
1
Q
What is Aggregate supply?
A
Total amount produced in an economy.
2
Q
Draw a short run SRAS diagram
A
3
Q
Draw the Keynesian LRAS diagram and explain what is going on
A
Between X and Y there is Spare capacity and between points Y and Z there is a Bottleneck . At point Z there is full employment.
4
Q
Draw the neoclassical LRAS curve
A
5
Q
How do you know what AS curve to shift?
A
If cost change -> shift SRAS
Quantity/Productivity change -> shift LRAS
6
Q
How does income affect AD/AS
A
Income changes -> this shifts AD (but you can use any AS diagrams)
7
Q
Why do we use a Keynesian LRAS normally?
A
It’s more reliable for evaluation
