Aggregate Supply

• What is short run economic growth?

  Growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy.
• What does SRAS show?

  Shows total planned output when prices can change but the prices and productivity of factor inputs e.g. wage rates and the state of technology are held constant.

  A.K.A. SRAS is focused on the cost of production.
• What is long run economic growth?

  An increase in the economy‘s potential level of real output, and an outward shift on the economy’s production possibility frontier (PPF).
• What does LRAS show?

  Shows the total planned output when both prices and average wage rates can change - it is a measure of a country‘s potential output and the concept is linked to the PPF.
• What does Classical LRAS show?

  . Output is fixed at each level. All FOP in the economy are fully employed in the long run.

  . This means that changing AD only makes a change in the price level and it will not change national output (real GDP).
• What causes a shift in/out in LRAS?

  Increase or decrease of the quality/quantity of the factors of production.
• What causes a movement along LRAS?

  Shift in aggregate demand.
• What does Classical LRAS assume?

  Assumes that in the long run you will operate at your maximum productive potential, essentially on your PPF curve.
• What are classical LRAS and PPF the same?

  Increase in PPF=increase in LRAS.
• What causes a shift in/out in SRAS?

  Change in the costs of production e.g. Change in wage rates, cost of raw materials.
• What causes a movement along SRAS?

  Shift in aggregate demand.
• what factors will shift SRAS?

  . Rent

  . Cost of raw materials

  . Wages

  . Change in commodity prices

  . Exchange rates

  . Price of imports - protectionism (tariffs, quotas)
• What specifically will cause SRAS to shift in?

  . wages increasing

  . using up scarce resources

  . rent increasing

  . supply chain issues-block of the suez

  . increase in transport costs

  . increase in tax (corporation)
• What specifically causes SRAS to shift out?

  . wages decreasing

  . mor access to scarce resources

  . subsidies

  . decrease in transport costs

  . decrease in tax (corporation)
• What are the 3 main factors influencing SRAS?

  • changes in cost of raw materials and energy
  • changes in exchange rates
  • changes in tax-rates
• What is a summary of changes in cost of raw materials and energy in relation to SRAS?

  . An increase in the cost of raw materials and energy will increase the costs of production for firms within the economy.

  . Therefore, the cost of goods and services that they supply increase as the raw materials used to make them are now more expensive.

  . This will shift SRAS to the left.
• What is a summary of the changes in exchange rates in relation to SRAS?

  . A weakening in the exchange rate will result in an increase in the price of imports.

  . This will increase the cost of production for all firms within th economy as they have to pay a higher price for any goods or services that they decide to import. This is often capital or parts of production.

  . This will cause a shift to the left in SRAS.
• What is a summary of changes in tax rates in relation to SRAS?

  . The main type of taxation that affects SRAS is corporation tax, as this leads to an increase in the cost of production for firms within the economy.

  . As corporation tax increases, cost of production increases.

  . This leads to a shift inwards with SRAS.
• What happens to SRAS when there’s an increase in minimum wage?

  An increase in national minimum wage would lead to a higher cost for all firms, leading to a shift to the left in SRAS.
• what happens to SRAS when there’s a stronger poung (GBP)?

  A stronger pound (GBP) would lead to cheaper imports so this would decrease the cost of production for firms importing from overseas. Thus causing a shirt out for SRAS.
• What would happen to SRAS as there’s an increase in corporation tax?

  An increase in corporation tax would lead to higher costs of production for firms so there would be a shift inwards with regards to SRAS.
• What would happen to SRAS if there’s a decrease in the price of oil (a raw material)?

  A decrease in the price of oil would mean lower commodity prices/costs and so there would be a shift outwards, regarding SRAS.