3.2.2 (short run) aggregate supply

aggregate supply

total supply of goods/services produced within an economy at a specific price level at a given time

short run

a period in which wages and other factor prices are inflexible

long run

a period which there is full wage and factor price flexibility

AS curve

upward sloping

➜ AS is the combined supply of all individual supply curves

➜ as real output increases, firms have to spend more to increase production (increased costs = higher average prices)

movement along SRAS curve

change in average price level

(expansion/contraction)

shifts of the entire SRAS curve

change in the non-price determinants of supply in an economy

non-price determinants of SRAS

- changes in costs of raw materials and energy

- changes in indirect taxes

input cost rises

as price of input costs rise, fewer goods/services can be produced with the same amount of money

➜ SRAS decreases, shifts left

input costs decrease

more goods/services can be produced with the same amount of money

➜ SRAS increases, shifts right

factors that influence input costs

- wage rates

- interest rates

- government regulation

- exchange rates

indirect taxes

represent an additional cost for firms

decreasing taxes

= decrease in costs = more output

➜ SRAS increases, shifts right

increasing taxes

= increase in costs = less output

➜ SRAS decreases, shifts left