topic 12 - theme 2 Flashcards
aggregate supply
what does aggregate supply mean?
the total output that all firms in an economy plan to produce at different price levels in a given time period
what is short run aggregate supply?
a curve showing how much output all firms would be prepared to supply in the short-run at any given price level
what does the total amount supplied in an economy depend on?
the quantity and price of the 4 FOP’s (factors if production)
- land
- labour
- capital
- enterprise
what does land mean from the FOP’s?
all natural resources
e.g. crops, soil, minerals
what does labour mean from the FOP’s?
human effort
what does capital mean from the FOP’s
man made resources
what does enterprise mean from the FOP’s?
- entrepreneurial skill and ability
- intellectual endeavour resources
what are examples of costs of inputs (FOPs) that change the position of the SRAS curve?
- raw material costs
- oil prices
- wages
what are examples of the exchange rate that change the position of the SRAS curve?
- CID & DEC
- more significant the more an economy relies on imports
what are examples of government intervention that change the position of the SRAS curve?
- microeconomic subsidies
- corporation tax
- regulations that make trade more costly (e.g health and safety)
why does the LRAS shift?
a change in the capacity or productive potential of an economy
what are some causes of a shift in the LRAS?
- natural disaster
- investment
- government initiatives such as HS2
what do monetarists believe about LRAS?
LRAS is drawn vertical
- assumed that this is the outright capacity of the economy in the long-run and that this will not change given the current FOPs available in this economy
what does the natural rate of output mean?
the long-run equilibrium level of output at which full employment is achieved, which the macroeconomy will arrive at in the long-run
what does the natural rate if unemployment mean?
the unemployment rate that will exist when the economy us in long-run equilibrium
what do keynesian believe about long-run aggregate supply?
macroeconomy could settle in an equilibrium that was below full employment but that was still considered the long run position in the economy
what could cause a shift right in the LRAS?
- an increase in ant of the 4 FOPs
- government macroeconomic policy (e.g. decreased corporation tax)
- government micro policy (e.g. subsidies)
- the discovery of a new way of doing things
