4.2.2.5 Short-run aggregate supply

SRAS

The relationship between total planned output and general price levels

What leads to a shift in the SRAS curve?

Changes in the factors of production - i.e. rises in wage rates

What leads to a movement along the SRAS curve?

A rise in real output

Describe the SRAS curve

The SRAS curve is elastic initially since there is plenty of spare capacity, therefore, a rise in AD will lead easily to a expansion of real national output

Further on, SRAS is inelastic - a rise in AD will have more of an effect on the general price level than it will on the volume of real national output.

Why does the SRAS curve gradually become steeper?

Over time, firms will gradually use up their spare capacity. As more is used up, the gradient becomes steeper due to prices increasing