Theme 2 - Aggregate Supply Flashcards
Aggregate supply
The total output of an economy at varying prices. It is the ability of an economy to produce goods and services in the short and long run
Short run aggregate supply curve
Shows how much output firms would be prepared to supply in the short run at any given overall price level.
Supply side shock
An external shock that affects aggregate supply. It usually suddenly increases (or decreases) costs of production.
Long run aggregate curve supply
The long run aggregate curve supply curve is determined by all factors of production - size of workforce, levels of eduction and labour productivity
Classical economists
A group of economists that believe the macro economy always adjusts rapidly to the full employment level of output.
Keynesian economists
A group of economists that believe the macro economy could settle at an equilibrium that was below full employment.
Macroeconomic equilibrium
This occurs where aggregate demand equals aggregate supply. It can be short run or long run.
Monetarist economists
A group of economists who believe that the macro economy always adjusts rapidly to the full employment level of output, and using monetary policy is the main way to control the economy.
Natural rate of output
The long run equilibrium level of output that monetarists believe the macro economy will always return to which corresponds to full employment.
Natural rate of unemployment
The unemployment rate monetarists believe will exist when the economy is in a long run equilibrium
Short run
The period of time in which at least one factor of the production is fixed in supply, so it is difficult for firms to increase their output.
Long run
The period of time in which factors of production are not fixed in supply
