2.3 Aggregate Supply Flashcards
(19 cards)
What does the AS curve represent?
The quantity of real GDP supplied at different price levels in the economy.
Why is the SRAS curve upward sloping?
Producers are willing to supply more at higher price levels because they can earn more profits.
What happens to SRAS if AD falls?
There is a contraction in SRAS
What causes the SRAS curve to shift?
Changes in the conditions of supply, affecting SRAS.
What is the difference between short run and long run in terms of production factors?
In the short run, at least one factor of production is fixed; in the long run, all factors are variable.
What does the short run aggregate supply curve (SRAS) show?
The planned output of an economy when prices change, with constant costs of production and productivity.
What does the long run aggregate supply curve (LRAS) represent?
The potential supply of an economy in the long run when all prices and productivity of factor inputs can change.
What is the shape of the LRAS curve in the classical model?
Vertical, indicating that supply does not change as the price level changes.
What factors influence short-run AS?
- Cost of raw materials
- Cost of energy
- Tax rates
How does a stronger currency affect short-run AS?
Reduces the price of imports, lowering business costs and shifting the AS curve outwards.
What is the Keynesian view of the long-run AS?
The price level is fixed until resources are fully employed, with a horizontal section indicating spare capacity.
What happens in the Keynesian model when resources are fully employed?
Output increases lead to inflation, raising the price level.
What does the classical view of long-run AS suggest?
Output is fixed at each level, and changes in AD only affect the price level.
What influences the LRAS curve?
Changes affecting the quantity or quality of factors of production.
How do technological advances impact LRAS?
They allow the economy to produce larger volumes or improve the quality of goods and services.
What is the effect of changes in education and skills on LRAS?
Improves the quality of human capital, making it more productive.
How can government regulations affect LRAS?
Excessive regulations can limit productivity and efficiency.
What is the impact of demographic changes and migration on LRAS?
Net inward migration increases the labor force size, allowing for higher output.
How does competition policy affect LRAS?
Encourages firms to be more efficient and productive.
