2.3. Aggregate Supply Flashcards
(24 cards)
What does the Aggregate Supply (AS) curve represent?
The volume of goods and services produced within the economy at a given price level.
Why is the short-run AS curve upward sloping?
Firms are willing to supply more, but only at a higher price.
What causes a movement along the AS curve?
A change in the price level.
What causes a shift in the AS curve?
Factors other than the price level, such as changes in costs of production.
What is fixed in the short run on the AS curve?
Money wage rates, factor prices, and the state of technology. (At least one Factor of Production)
What is the main cause of a shift in the short-run AS?
A change in the cost of production.
How do changes in the cost of raw materials and energy affect the SRAS curve?
An increase in costs shifts the SRAS curve left.
How does a weaker pound affect the SRAS curve?
It leads to an increase in the price of imports, causing SRAS to decrease (shift left).
How do taxes affect the SRAS curve?
Taxes increase the cost of production, shifting SRAS to the left.
How do subsidies affect the SRAS curve?
Subsidies decrease the cost of production, shifting SRAS to the right.
What is a supply-side shock?
Significant changes in factors that affect the cost of production.
In the long run, what determines Aggregate Supply according to the classical view?
The level of all factors of production and the quality of technology.
What is the LRAS a measure of?
A country’s potential output.
Why is the classical LRAS curve vertical?
Markets tend to correct themselves fairly quickly, naturally moving towards equilibrium.
According to Keynes, what is the shape of the LRAS curve?
It is not always vertical; it can be horizontal or upward sloping.
What does the horizontal portion of the Keynesian LRAS curve represent?
High unemployment and perfectly elastic supply.
What causes the Keynesian LRAS curve to become upward sloping?
Labor becoming scarce, forcing firms to offer higher wages.
What does a rightward shift of the LRAS curve mean?
Economies are able to produce more.
How do technological advances affect the LRAS curve?
They shift the LRAS curve to the right.
How do changes in relative productivity affect the LRAS curve?
Increased productivity shifts the LRAS curve to the right.
How do changes in education and skills affect the LRAS curve?
A more skilled workforce shifts the LRAS curve to the right.
How can government regulations impact the LRAS curve?
Through policies that affect the size of the workforce, research and development, and incentives for entrepreneurship.
How do demographic changes and migration affect the LRAS curve?
A growing, working-age population increases the LRAS.
How does competition policy affect the LRAS curve?
Promoting competition can increase efficiency and shift LRAS to the right.
