2.3 aggregate supply

    Cards (25)

    • What does the AS curve represent in an economy?
      It shows the quantity of real GDP supplied at different price levels.
    • Why is the SRAS curve upward sloping?
      Because producers are willing to supply more at higher price levels to earn more profits.
    • What leads to movements along the AS curve?
      Changes in the price level due to changes in aggregate demand (AD).
    • What happens to the SRAS if aggregate demand (AD) increases?
      There is an expansion in the SRAS, moving from Y1 to Y2.
    • What occurs to the SRAS if aggregate demand (AD) falls?
      There is a contraction in the SRAS, moving from Y1 to Y3.
    • When does the SRAS curve shift?
      When there are changes in the conditions of supply affecting SRAS.
    • 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.
    • 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.
    • Why is the SRAS curve upward sloping?
      Because supply is assumed to be responsive to changes in aggregate demand reflected in the price level.
    • 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.
    • 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.
    • What factors influence the short-run aggregate supply (SRAS)?
      Changes in the conditions of supply, typically in the form of costs to businesses.
    • 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.
    • 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.
    • How do increased tax rates influence SRAS?
      Increased tax rates raise business costs and decrease SRAS.
    • 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.
    • 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.
    • What factors influence the long-run aggregate supply (LRAS)?
      Changes that affect the quantity or quality of the factors of production.
    • How do technological advances affect LRAS?
      They allow the economy to produce goods in larger volumes or improve the quality of goods and services.
    • 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.
    • How do changes in education and skills influence LRAS?
      They improve the quality of human capital, making it more productive and innovative.
    • What effect do government regulations have on LRAS?
      Excessive regulations can limit productivity and efficiency, referred to as 'red-tape'.
    • 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.
    • What role does competition policy play in influencing LRAS?
      A more competitive market encourages efficiency and productivity among firms.
    • 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.