3.3: Short Run Aggregate Supply (SRAS)

Question 1

Aggregate Supply

Answer 1

the amount of goods and services (real GDP) that firms will produce in an economy at different price levels. The supply for everything by all firms

Question 2

Short-Run Aggregate Supply

Answer 2

Wages & resources prices are sticky & Will not change as price levels change

Question 3

Long Run Aggregate Supply

Answer 3

Wages and resources prices are flexible and will change as price levels change

Question 4

What happens when price levels go up?

Answer 4

Businesses have an incentive to produce more in the short run

Question 5

Shifters of Aggregate Supply

1.

Answer 5

An increase or decrease in national production can shift the curve right or left

1. Change in Resource Prices

Price of Domestic and Imported Resources

Ex: If the cost of steal increases, the SRAS shifts left

Supply Shock
Negative Supply Shock: sudden decrease in the amount of a key resource

Positive Supply Shock: Sudden increase in the amount of a key resource.

Inflationary Expectations
Ex: if consumers & producers expect higher prices in the future, workers will demand higher wages and costs will increase

Question 6

Shifters of Aggregate Supply
2.

Answer 6

2. Change in Actions of the Government (Not Gov. Spending)

Taxes on Producers
Ex: Lower corporate taxes will increase SRAS

Subsides for Domestic Producers
Ex: More subsides for farmers will increase SRAS

Gov. Regulations
Ex: Environmental restrictions will decrease SRAS

Question 7

Shifters of Aggregate Supply
3.

Answer 7

3. Change in Productivity

Technology
Ex: New Manufacturing robots will increase SRAS