Theme 2.3 Flashcards
What does aggregate supply show?
The quantity of real GDP supplied at different price levels in the economy.
Why is the SRAS curve upward sloping?
At a higher price level, producers are willing to supply more because they can earn more profits.
What is the difference between the short run and long run in terms of production factors?
In the short run, at least one factor of production is fixed; in the long run, all factors are variable.
What does the short run aggregate supply curve (SRAS) represent?
The planned output of an economy when prices change, while costs and productivity of inputs are constant.
What happens to the SRAS curve when there is a change in production costs?
The SRAS curve shifts.
What does the long run aggregate supply curve (LRAS) indicate?
The potential supply of an economy in the long run when prices and costs can change.
List the factors that influence SRAS
1) cost of raw materials
2) stronger currency reduces price of imports, so imports cheaper, reducing business costs
3) increased tax rates would increase business costs and therefore decrease SRAS
What is the Keynesian view of the LRAS curve?
The price level is fixed until resources are fully employed, showing spare capacity in the horizontal section.
What does the vertical section of the LRAS curve represent?
The point when resources are fully employed.
What is the classical view regarding output in the LRAS curve?
Output is fixed at each level with all factors of production fully employed in the long run.
How does technological advancement affect LRAS?
It allows the economy to produce goods in larger volumes or improve the quality of goods and services.
What impact do changes in education and skills have on LRAS?
They improve human capital quality, making it more productive and capable of producing a wider variety of goods and services.
What is the effect of government regulations on LRAS?
Excessive regulation can limit productivity and efficiency, often referred to as ‘red-tape’.
How do demographic changes and migration influence LRAS?
Net inward migration increases the size of the labor force, enabling the economy to increase output.
What role does competition policy play in LRAS?
It encourages firms to be more efficient and productive, stimulating efficiency in the economy.
Fill in the blank: The SRAS curve shifts when there are changes in the _______.
[conditions of supply]
What is the LRAS curve influenced by?
The LRAS curve is influenced by changes which affect the quantity or quality of the factors of production. This is equivalent to shifting the PPF curve i.e. when the economy is operating at full capacity. An increase in the number of goods/services produced would mean that LRAS would shift outwards.
