How the Macroeconomy Works- Possible conflicts between macroeconomic policy objectives

Question 1

What shifts the SRAS curve?

Answer 1

Changes in the conditions of supply

This includes factors such as price level and production costs.

Question 2

What are the main determinants of SRAS?

Answer 2

Price level and production costs

These factors influence the overall supply in the short run.

Question 3

What happens to SRAS when employment costs increase?

Answer 3

Supply shifts inwards from SRAS1 to SRAS3

Increases in wages, taxes, or labor productivity can lead to higher employment costs.

Question 4

How does the cost of inputs affect SRAS?

Answer 4

Changes in costs of raw materials, commodity prices, and exchange rates

A stronger currency reduces the price of imports, shifting the AS curve outwards.

Question 5

What is the effect of a stronger currency on imported products?

Answer 5

Imported products become cheaper

This can lead to an outward shift of the AS curve from SRAS1 to SRAS2.

Question 6

What role do government regulations play in SRAS?

Answer 6

They can shift the SRAS curve due to changes in business regulation or environmental laws

Business regulation is sometimes referred to as ‘red tape’.

Question 7

What is a potential consequence of net outward migration of workers?

Answer 7

A ‘brain drain’ on the domestic economy

This occurs when skilled workers move to other regions or countries.

Question 8

What happens to SRAS if there is a fall in business capital spending?

Answer 8

Supply will fall

Reduced investment in capital can lead to decreased production capacity.