Aggregate Supply

Question 1

What is aggregate supply?

Answer 1

The total supply of all goods and services produced at a given overall price at a given time

Question 2

What does total output depend on?

Answer 2

The factors of production
>SR- ability to vary factors of production
>LR- factors of production remain constant

Question 3

What is short run aggregate supply?

Answer 3

Goods and services that firms are willing and able to produce at a given price level In the short term

Question 4

How does short run aggregate supply work?

Answer 4

One factor of production is fixed so firms can react to changes in price level

Question 5

What is long run aggregate supply?

Answer 5

The maximum that can be produced with all the factors of production in an economy

Question 6

What shifts SRAS?

Answer 6

Firms base their production decisions on cost of production
A shift maybe experienced if:
- wage rate change
- raw material cost change
- taxation rates change
- productivity of workers or capital change
- exchange rates change

Question 7

How does LRAS work?

Answer 7

-firms can vary all factors of production
-all factors of production are in use, so it doesn’t matter the price level, the quantity produced will always be the same

Question 8

What shifts LRAS ?

Answer 8

A change in the quality or quantity of the factors of production

Question 9

What shifts LRAS?- Land

Answer 9

• new resources (e.g oil, natural resources) are found
• better technique for extracting is found

Question 10

What shifts LRAS- Labour

Answer 10

-more jobs due to baby boom or increase in retirement age
-better education and training skills

Question 11

What shifts LRAS?- Capital

Answer 11

-more investment from overseas
-tech changes so more productive machinery

Question 12

What shifts LRAS?- Enterprise

Answer 12

-more start-up businesses
-improvement in education so better entrepreneurs

Question 13

What is the Keynesian approach?

Answer 13

-no distinction between SRAS and LRAS
-what all factors of production are being used AS curve is vertical as outputs at its highest
-as moves away from highest output, AS curve flattens out
-when economy has plenty of spare capacity AS curve is horizontal
- effects depend upon how close economy is to full capacity

Question 14

Neoclassical economists

Answer 14

economists who argue that markets would allow the economy to adjust to equilibrium