2-3 Aggregate supply

Question 1

What is aggregate supply?

Answer 1

• Quantity of real GDP which is supplied at different price levels in the economy.

Question 2

What are the factors the influence short-run AS?

Answer 2

• Costs of raw materials
• Stronger currency reduces price of imports so reduces costs
• Increased tax rates would increase costs

Question 3

What is the Keynesian view of the LRAS curve?

Answer 3

• Suggests that the price level in the economy is fixed until resources are fully employed.

Question 4

What is the Classical view of the LRAS curve?

Answer 4

• Output is fixed at each level, all factors in the economy are fully employed in the long run.

Question 5

What are the factors that influence long-run AS?

Answer 5

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