theme 2 : AS Flashcards
Aggregate Supply meaning
quantity of goods and services produced in an economy
producers are willing and able to produce a good at a given price over a given period of time
short run meaning
at least one factor of production is fixed
long run meaning
all factors of production are variable
shift in the SRAS
inwards- increase in the cost of production
outwards- decrease in the cost of production
shift in the LRAS
inwards- decrease of the productive potential of an economy
outwards- increase of the productive potential of an economy
SRAS meaning
relationship between planned national output and the general price level
factors influencing SRAS
-change in resource (imput) -prices
-changes in exchange rate
-business tax, subsidies, regulations and import cost
-supply shock
changes in resources influencing SRAS
-wage cost per unit of output
-labour productivity
-raw material and component cost
-energy costs
changes in exchange rate influencing SRAS
-weaker pound, more expensive imports, increase in cost of production
-stronger pound, cheaper imports, decrease cost of production
business tax, subsidies, regulation and import cost influencing SRAS
-VAT, environmental charges, employment tax
-change in gov subsides
-increase regulation more difficult to produce
supply shock influencing SRAS
environmental hazards
global pandemic
changes to national output
LRAS meaning
production potential of an economy
quality and quantity of factors of production
classical LRAS theory
AS curve is vertical because they believe that markets will correct themselves
any output gaps will return to vertical AS
keynesian LRAS
price level in the economy is fixed until resources are fully employed
Factors influencing LRAS
-technological advances
-increased productivity
-changes in education and skill
-change in government regulation
-changes to the demography/ migration
-competition policy
-changes to labour supply
-change in stock of capital
-efficiency of factors of production
