AS Flashcards
(21 cards)
What is Aggregate Supply (AS)?
Aggregate Supply represents the total quantity of goods and services that producers in an economy are willing and able to supply at different price levels in a given period of time.
What is the difference between short-run and long-run aggregate supply?
Short-run Aggregate Supply (SRAS) reflects the total output that firms are willing to supply at different price levels, assuming some input prices (like wages) are sticky. Long-run Aggregate Supply (LRAS) is the total output an economy can produce when all factors of production are fully employed, and the economy operates at full capacity.
What causes the SRAS curve to slope upwards?
The SRAS curve slopes upwards because as the price level increases, firms are willing to supply more goods and services.
What factors affect short-run aggregate supply (SRAS)?
Changes in resource prices, productivity, tax and regulation, and exchange rates affect SRAS.
What is the Long-Run Aggregate Supply (LRAS)?
LRAS represents the potential output of an economy when all resources are fully employed, and the economy is producing at its natural level of output.
What causes the LRAS curve to shift?
Changes in the quantity of factors of production, technological advancements, investment in human capital, and institutional changes can shift LRAS.
What is the relationship between SRAS and the price level?
In the short run, there is a positive relationship between the price level and the quantity of output supplied.
What is the potential output of an economy?
The potential output is the level of output that an economy can produce when all factors of production are fully employed.
What is the effect of a shift in SRAS on the economy?
A rightward shift in SRAS indicates an increase in the economy’s capacity to produce, leading to lower prices and higher output. A leftward shift indicates a reduction in capacity, leading to higher prices and lower output.
What is supply-side inflation?
Supply-side inflation occurs when the cost of production increases, leading to a decrease in aggregate supply, which pushes the price level up.
What is the long-run equilibrium in the AS-AD model?
The long-run equilibrium occurs when the economy is operating at its potential output, and the aggregate demand curve intersects the LRAS curve.
What is the Keynesian range of aggregate supply?
In the Keynesian model, the economy is in the Keynesian range when output is below the potential output, and there is unused capacity in the economy.
What is the classical range of aggregate supply?
In the classical range, the economy is at full employment, and output cannot increase further regardless of increases in aggregate demand.
What is the intermediate range of aggregate supply?
The intermediate range represents a period when the economy is operating between the Keynesian and Classical ranges.
How do changes in wages affect SRAS?
Higher wages increase production costs, shifting SRAS to the left. Lower wages reduce production costs, shifting SRAS to the right.
What is a negative supply shock?
A negative supply shock is an event that decreases the economy’s ability to supply goods and services, causing the SRAS curve to shift left.
What is a positive supply shock?
A positive supply shock is an event that increases the economy’s ability to produce goods and services, causing the SRAS curve to shift right.
What is the relationship between AS and economic growth?
Economic growth can be achieved through an increase in aggregate supply.
What role do government policies play in shifting AS?
Supply-side policies and monetary policy can shift AS.
What is the impact of an increase in SRAS on inflation?
An increase in SRAS can reduce inflationary pressures because it lowers production costs.
