Aggregate Supply (Pack 3)

• What is the definition of 'short run aggregate supply'?

  The total production of goods and services at current prices
• What does a leftward shift in the short run aggregate supply curve indicate?

  A decrease in total production at current prices
• What are three factors that could cause the short run aggregate supply curve to shift left?

  • Increase in production costs
  • Decrease in labor supply
  • Supply chain disruptions
• What is the definition of 'long run aggregate supply'?

  The total production of goods and services at full employment
• What is a 'positive output gap'?

  When actual output exceeds potential output
• How can a positive output gap be illustrated on a classical diagram?

  By showing actual output above the long run aggregate supply
• What is a 'negative output gap'?

  When potential output exceeds actual output
• How can a negative output gap be illustrated on classical and Keynesian diagrams?

  By showing actual output below the long run aggregate supply
• What are the shapes of the classical and Keynesian LIRAS curves?

  • Classical LIRAS: Vertical line at full employment
  • Keynesian LIRAS: Upward sloping at low output, vertical at full employment
• What is the definition of 'relative productivity'?

  Output per unit of input compared to others
• How do classical economists believe an economy in a negative output gap returns to long run equilibrium?

  Through falling costs leading to increased supply
• What are five factors that could cause a rightward shift in an economy's LRAS curve?

  • Technological advancements
  • Increase in labor force
  • Improved education and skills
  • Increase in capital investment
  • Enhanced productivity
• What is the definition of 'Equilibrium level of real national output'?

  The level where aggregate supply equals aggregate demand