Aggregate Supply Flashcards
(21 cards)
What is the short run
A period where at least one factor of production is fixed
What is aggregate supply
The total supply of goods and services produced by an economy at a given price level
What does the SRAS curve look like
Why does the SRAS curve slope upwards
Increased short run output increases costs because of overtime pay so price level increases
Why does the profit incentive not occur with regards to SRAS
Because the revenue and the costs increase by the same amount so profit stays the same
What is the long run
A period of time where all factors of productoin are variable
What are the two versions of LRAS
Neoclassical LRAS
Keynsian LRAS
What does the Keynsian LRAS look like
Slowly slopes upwards
Explain the shape of the Keynsian LRAS
At the beginnig price and Real GDP is low nothing is being produced so there are loads of resources available (easy to increase ouput)
The curve begins to slope upwards because the resources are starting to be used up more
At a certain point it stops moving horizontally because all resources are being used up
What is a bottleneck
It is when less resources are available
Explain the shape of the Neoclassical LRAS
In the long run the economy uses all resources and is fully efficient at full employment
What is the shape of the Neoclassical LRAS
What is between X and Y and Y and Z
Spare capacity
Bottleneck
What shifts SRAS
When costs of production change
What shifts LRAS
When quantity of factors of production and/or productivity change
If the government spent more on vocational training what curve would shift to the right
LRAS
How does an increase in the price of oil affect AS
Increase costs of production
Shift SRAS to the left
What are commodities
Things that are used so commonly in an economy
What will the discovery of diamonds do for the AS of an economy
Increase the Land factor as a factor of production
Shift LRAS to the right
How does increased investment affect AS
Increased investment leads to the purchasing of improved technology which increases productivity
This shifts LRAS to the left
What are the three factors that can shift AS
Commodity prices
Natural resources
Investment
