2.3 Aggregate supply

• What does aggregate supply measure?

  Measures the volume of goods and services produced within the economy at a given price level
• What causes a shift in AS?

  Changes in cost of production
• What causes movement along the supply curve?

  Changes in price levels
• What does movement along the aggregate supply curve cause?

  Contraction and expansion in supply
• What is short run aggregate supply?

  Shows total planned output when prices in the economy can change but their prices and productivity of all factor inputs are assumed to be held constant
• What does the SRAS assume?

  Assumes that some resources are fixed, Assumes it is possible to use existing resources more intensively, A higher price level might result in an increase in real output
• What factors influence SRAS?

  Changes in costs of raw materials, changes in tax rates, changes in exchange rates, changes in level of tariffs,
• What is long run aggregate supply?

  Shows total planned output when both prices and average wage rates can change
• What does the LRAS assume?

  All resources are variable
• What is spare capacity?

  Where there are unemployed resources in an economy
• What are characteristics if the classical LRAS?

  It assumes that markets are efficient and will adjust without government intervention, If resources are unemployed, prices will fall until the surplus disappears, All resources are working at full capacity
• What's the impact of a shift in aggregate demand on real output in the classical model?

  No impact on real output as the aggregate supply curve is perfectly inelastic
• What are characteristics of the Keynesian LRAS?

  It argues that it is possible to have unused resources in the economy (spare capacity) and therefore both unemployment and recession which require some form of government intervention., Suggests that output can be increased without a significant increase in costs
• What factors influence LRAS?

  Changes in government regulations, education and skill changes, technological advances, demographic changes and migration, competition policy
• What is productivity?

  Output per unit of input