2.3 - Aggregate Supply

Question 1

How can exchange rates shift the SRAS curve

Answer 1

The exchange rate can lead to higher price of imports- shifting LRAS inwards, or the opposite

Question 2

Why does the Keynesian LRAS curve upwards

Answer 2

At low quantities of output, there is a lot of spare capacity and increases in output use up this spare capacity and they are not inflationary. Unemployed workers are hired and unused factors of production are used