Aggregate Supply

• What does the AS curve represent?

  Quantity of real GDP supplied at price levels

  
• Why is the AS curve upward sloping?

  Producers supply more at higher price levels
• What causes movements along the AS curve?

  Changes in price level due to AD changes
• What happens to SRAS if AD increases?

  Expansion occurs from Y1 to Y2
• What happens to SRAS if AD falls?

  Contraction occurs from Y1 to Y3
• When does the SRAS curve shift?

  When conditions of supply change
• What factors can change the cost of employment?

  Wages, taxes, and labor productivity
• What can affect the cost of other inputs?

  Raw materials, commodity prices, exchange rates
• What is 'red tape' in business regulation?

  Excessive government regulation limiting efficiency
• What does the Keynesian view suggest about price levels?

  Price level is fixed until full employment
• What does the horizontal section of the Keynesian AS curve indicate?

  Resources are not fully employed, spare capacity exists
• What happens to output in the spare capacity section?

  Output can increase without affecting price level
• What occurs once resources are fully employed?

  Output increases lead to inflation
• What is the LRAS curve's characteristic at full employment?

  It is vertical at the full employment level
• What happens to national output when AD changes in the long run?

  Only the price level changes, not output
• What influences the LRAS curve?

  Changes in quantity or quality of production factors
• How do technological advances affect LRAS?

  They allow larger volumes or better quality production
• What is the effect of changes in relative productivity on LRAS?

  More output from the same input quantity
• How do changes in education and skills impact LRAS?

  They improve human capital quality and productivity
• How can government regulations affect productivity?

  Excessive regulations can limit efficiency
• What is the impact of demographic changes and migration on LRAS?

  Inward migration increases the labor force size
• How does competition policy influence LRAS?

  Encourages efficiency and productivity among firms
• What are the factors influencing long-run AS?

  • Technological advances
  • Changes in relative productivity
  • Changes in education and skills
  • Changes in government regulations
  • Demographic changes and migration
  • Competition policy