macro - aggregate supply

Question 1

what is aggregate supply?

Answer 1

the total amount that producers in an economy are willing and able to supply at a given price level in a given time period

Question 2

explain the relationship between aggregate supply and the price level in the short run

Answer 2

in the short run, factors of production are not variable
if firms want to increase output, they will have to utilise existing inputs (overtime)
firms will supply more, if prices increase
in the short run, AS curve is upward sloping

Question 3

explain why the aggregate supply curve may shift in the short run

Answer 3

change in the costs of factor outputs
change in the availability of factor outputs
change in the effectiveness of factor outputs

Question 4

explain why the aggregate supply curve may expand/contract in the short run

Answer 4

rise/fall in the price level

Question 5

explain the relationship between aggregate supply and the price level in the long run

Answer 5

in the long run, factors of production are variable
LRAS curve shows productive potential of an economy and is independent from the price level (not determined by changes in price and demand)
assumes that the economy is at full capacity in the long run

Question 6

explain why the aggregate supply curve may shift in the long run

Answer 6

changes in the quantity and quality of factors of production, changing productive potential of economy

Question 7

explain the Classical approach to aggregate supply

Answer 7

the vertical LRAS curve based on Classical view
long run, economy always adjusts to full employment level of output
long run equilibrium = natural rate of output

Question 8

explain the Keynesian approach to aggregate supply

Answer 8

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