Aggregate supply

• What will be covered in this video regarding aggregate supply?

  The video will cover aggregate supply and how it relates to macro equilibrium.
• Why is aggregate supply considered a complex topic in economics?

  Because it is heavily disputed among different schools of economic thought.
• What are the two main interpretations of aggregate supply mentioned?

  The two main interpretations are from Keynesian and classical economists.
• What does the classical model of aggregate supply include?

  The classical model includes short-run aggregate supply (SRS) and long-run aggregate supply (LRS).
• How is short-run aggregate supply (SRS) represented in the classical model?

  SRS is represented as an upward sloping curve.
• What determines the position of short-run aggregate supply (SRS)?

  The position of SRS is determined by costs of production in the economy.
• What happens to SRS if there is an increase in costs of production?

  SRS will shift to the left.
• What happens to SRS if there is a decrease in costs of production?

  SRS will shift to the right.
• What are some examples of costs of production that can affect SRS?

  Wages, raw material prices, and business taxes are examples of costs of production.
• How do wages affect short-run aggregate supply (SRS)?

  If wages increase, SRS will shift to the left due to higher costs of production.
• What is the impact of rising raw material prices on SRS?

  Rising raw material prices will shift SRS to the left.
• How does the price of oil affect costs of production?

  Higher oil prices increase costs of production, shifting SRS to the left.
• What role do business taxes play in affecting SRS?

  Higher business taxes increase costs of production, shifting SRS to the left.
• How do import prices affect SRS?

  Higher import prices increase costs of production, shifting SRS to the left.
• What is the relationship between exchange rates and import prices?

  A strong exchange rate makes imports cheaper, reducing costs of production and shifting SRS to the right.
• What is a supply-side shock?

  A supply-side shock is a sudden change that affects SRS, potentially shifting it quickly.
• What can cause a positive supply-side shock?

  A positive supply-side shock occurs when SRS shifts to the right due to falling costs of production.
• What can cause a negative supply-side shock?

  A negative supply-side shock occurs when SRS shifts to the left due to rising costs of production.
• What does the long-run aggregate supply (LRS) curve represent in the classical model?

  The LRS curve is vertical, representing one level of output the economy can always produce in the long run.
• What is yfe in the context of the classical model?

  Yfe is the Full Employment level of output, representing the maximum sustainable output of the economy.
• What does sustainable levels mean in relation to yfe?

  Sustainable levels mean producing output without overusing factors of production, avoiding burnout or breakdown.
• How can the long-run aggregate supply (LRS) shift to the right?

  The LRS can shift to the right with increases in the quantity and quality of factors of production or improvements in productive efficiency.
• What factors can cause the LRS to shift to the right?

  Labor productivity improvements, increased investment, and infrastructure improvements can shift LRS to the right.
• How does investment affect the economy?

  Investment increases the quantity and quality of capital, improving productive efficiency.
• What role does transport infrastructure play in the economy?

  Transport infrastructure improvements reduce long-run costs for businesses, enhancing productive efficiency.
• How can competition affect productive efficiency?

  Increased competition leads firms to reduce costs and improve efficiency to remain competitive.
• What can cause the LRS to shift to the left?

  The LRS can shift to the left due to decreases in labor productivity, mass capital depreciation, or disasters that destroy infrastructure.
• What is hysteresis in the context of labor supply?

  Hysteresis is a phenomenon caused by long-term unemployment where discouraged workers drop out of the labor force.
• How do Keynesian economists view the long-run aggregate supply (LRS) curve?

  Keynesian economists believe there can be multiple long-run levels of output, not just one fixed level.
• What do Keynesians dispute about the shape of the LRS curve?

  Keynesians dispute the idea of a fixed vertical LRS curve, arguing it can be bendy due to spare capacity.
• How do Keynesians view production below yfe?

  Keynesians believe that producing below yfe can still represent a long-run equilibrium.
• What happens to inflation when production increases in a deep recession according to Keynesians?

  Production can increase without inflationary pressure due to excess unemployment of factors of production.
• What occurs as the economy approaches yfe according to Keynesians?

  As the economy approaches yfe, factors of production become scarcer, leading to rising costs and inflation.
• What is the significance of the Keynesian aggregate supply curve becoming vertical?

  The Keynesian aggregate supply curve becomes vertical when all factors of production are fully utilized, leading to only inflation increases.
• What is the next topic to be covered in the following video?

  The next video will cover macro equilibrium by combining aggregate demand and aggregate supply.