2.3

Question 1

What is aggregate supply (AS)?

Answer 1

Defined as the total amount of goods and services (real output) produced and supplied by an economy firms over a period of time.
- All of businesses supply, curves together.

Question 2

What is the distinction between the short run and the long run?

Answer 2

• The short run is a period of time in which the quantity of at least one factor of production is fixed (expensive) and the quantities of the other inputs can be varied.
• The long run is a period of time in which the quantities of all inputs can be changed (more time for improvements).

Question 3

Why does the AS curve slope upwards?

Answer 3

The short run AS curve is upward sloping because higher prices for goods and services make output more profitable and enable businesses to expand their production by hiring less productive labour and other resources.

Question 4

What influences the level of AS?

Answer 4

• Wages = motivation
• Technology = efficiency
• Cost of materials = affordable
• Resources availability = restricted
  SPEC mention:
• Changes in costs of raw materials and energy
• Changes in exchange rates
• Changes in tax rates