10.5

• What shape does the SRAS curve usually have?

  Upward sloping
• what is the SRAS curve usually upwards sloping?

  because as prices rise, firms increase output to gain more profit (given wages and input costs are sticky in the short run)
• what causes a movement along the SRAS curve?

  a change in the price level, with costs of production assumed constant
• what causes a shift in the SRAS curve?

  a change in the costs of production (non-price factors)
• how do changes in wage costs affect SRAS?

  • higher wages -> higher cost -> SRAS shifts left
  • lower wages -> lower costs -> SRAS shifts right
• how do changes in raw material costs affect SRAS?

  • higher input costs (e.g oil, metals) -> SRAS shift left
  • cheaper inputs -> SRAS shifts right
• how does productivity affect SRAS?

  • higher productivity reduces unit costs -> SRAS shifts right
  • lower productivity increases costs -> SRAS shifts left
• how do indirect taxes affect SRAS?

  • higher indirect taxes (e.g VAT, excise duty) raise costs -> SRAS shifts left
  • Lower taxes reduce costs -> SRAS shifts right
• how do subsidies affect SRAS?

  • subsidies lower production costs -> SRAS shifts right
• how do supply shocks affect SRAS?

  unexpected events can disrupt or boost SRAS
• example of supply shocks affecting SRAS?

  a bad harvest reduces foot supply (left shift); a mild winter may boost crop yields (right shift)
• how do exchange rates affect SRAS?

  • depreciation -> imports more expensive -> costs rise -> SRAS shifts left
  • appreciation -> imports cheaper -> costs fall -> SRAS shifts right
• what is SRAS important for policy analysis ?

  • determines the short-term trade-off between inflation and output
  • helps governments predict how external shocks (like oil prices or wage changes) affect the economy