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economics edexcel A A-level
theme 2 economics
2.3 aggregate supply
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Cards (25)
What does the AS curve represent in an economy?
It shows the quantity of
real GDP
supplied at different
price
levels.
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Why is the SRAS curve upward sloping?
Because producers are willing to supply more at
higher
price levels to earn more
profits.
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What leads to movements along the AS curve?
Changes in
the price level
due to
changes in
aggregate demand (AD).
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What happens to the SRAS if aggregate demand (AD) increases?
There is an
expansion
in the SRAS, moving from Y1 to
Y2.
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What occurs to the SRAS if aggregate demand (AD) falls?
There is a
contraction
in the SRAS, moving from Y1 to
Y3.
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When does the SRAS curve shift?
When there are changes in the
conditions
of
supply
affecting SRAS.
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What is the difference between the short run and long run in economics?
In the short run, at least one factor of production is
fixed
, while in the long run all factors are
variable.
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What does the short run aggregate supply curve (SRAS) represent?
It shows the planned output of an economy when
prices
change, with constant costs of production and
productivity.
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Why is the SRAS curve upward sloping?
Because supply is assumed to be
responsive
to changes in aggregate demand reflected in the
price level.
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What does the
long run
aggregate supply curve (LRAS) show?
It shows the potential supply of an economy in the long run when all factors of production can
change.
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How is the LRAS curve represented in the classical model?
The
LRAS
curve is vertical because supply is assumed not to change as the
price level
changes.
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What factors influence the short-run aggregate supply (SRAS)?
Changes in the conditions of supply, typically in the form of
costs
to
businesses.
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How do changes in the cost of raw materials affect SRAS?
A rise in raw material costs would
increase
costs for businesses and
decrease
SRAS.
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What effect does a stronger currency have on the AS curve?
A stronger currency
reduces
the price of
imports
, decreasing business costs and shifting the AS curve outwards.
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How do increased tax rates influence SRAS?
Increased tax rates raise business
costs
and
decrease
SRAS.
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What are the characteristics of the Keynesian long-run aggregate supply curve?
Price level
is
fixed
until resources are fully employed.
Horizontal
section indicates spare
capacity
in the economy.
Vertical
section indicates
full employment
of resources.
Output can increase without affecting
price level
until
full employment
is reached.
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What does the classical view of long-run aggregate supply suggest?
Output is fixed at each level.
All factors of production are fully
employed
in the
long run.
Changes in aggregate demand only affect the
price level
, not
national output.
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What factors influence the long-run aggregate supply (LRAS)?
Changes that affect the quantity or quality of the
factors
of
production.
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How do technological advances affect LRAS?
They allow the economy to produce goods in
larger
volumes or improve the
quality
of goods and services.
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What is the impact of changes in relative productivity on LRAS?
More
productive
labor and
capital
inputs produce a larger quantity of output with the same quantity of input.
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How do changes in education and skills influence LRAS?
They improve the quality of
human capital
, making it more productive and
innovative.
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What effect do government regulations have on LRAS?
Excessive regulations can
limit productivity
and efficiency, referred to as
'red-tape'.
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How do demographic changes and migration affect LRAS?
Net
inward migration
of working-age individuals increases the size of the
labor force
, allowing for greater output.
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What role does competition policy play in influencing LRAS?
A more competitive market encourages
efficiency
and
productivity
among firms.
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How do microeconomic factors affect long-run aggregate supply (LRAS)?
Many factors affecting LRAS are
microeconomic
, such as
competition
policy.
Microeconomic changes can have
macroeconomic
impacts if widespread enough.
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