theme 2 chapter 3

Question 1

what is aggregate supply

Answer 1

total output of goods and services produced at any given price level

Question 2

what factor effects short run aggregate supply SRAS + what are some examples

Answer 2

cost of production
- raw material prices
- energy prices
- taxes

Question 3

what are the two different types of LRAS diagram

Answer 3

• classical
• Keynesian

Question 4

what do classical economists believe

Answer 4

• AS is perfectly inelastic
• economy has a maximum potential output
• market mechanism works to clear market

Question 5

what do Keynesian economists believe

Answer 5

• there is unemployed resources even in long run
• can be inefficient allocation of resources
• market mechanism wont always work

Question 6

what are the 6 shifts of LRAS

Answer 6

1. technological advances
2. improved productivity
3. improved skills and education
4. change in gov regulations
5. demographic changes(migration)
6. competition pollcy

Question 7

what is an output gap

Answer 7

difference between max potential output and current output