Aggregate Supply

Question 1

Define AS?

Answer 1

The total output produced in an economy at a given price level over a given period of time

Question 2

What’s the first type of AS?

Answer 2

SRAS - increase in price level means an increase in output firms are willing to supply

Question 3

How to tell if it’s inelastic or elastic?

Answer 3

If it slopes steeply upwards - inelastic
If its less steep - elastic

Question 4

What shape is LRAS and why?

Answer 4

Vertical - assumed that an economy will move to equilibrium (full productive potential)

Question 5

What causes a shift in SRAS?

Answer 5

Change in the cost of production
Reduction - shifts right
Increase - shifts left

Question 6

What causes a sudden decrease in AS?

Answer 6

Supply-side shocks - natural disaster, war

Question 7

What causes shifts in LRAS?

Answer 7

Changes in FOP
Improvement in FOP - shifts right

Question 8

Examples of improvements in FOP?

Answer 8

Education and skills
Skilled workers migrating
Health care
Increased competition
Changes in government regulations

Question 9

What did Keynesian economists say about the LRAS curve?

Answer 9

At low levels, AS is completely elastic - horizontal - output can be increased without increasing price level

When the curve begins to slope - problems with supply - increasing costs - shortage of labour or certain raw materials