Short-run AS

What is one of the main factors that can directly affect production costs for firms?

The cost of raw materials and energy

How do firms respond to a rise in costs affect SRAS?

Firms reduce output at the existing price levels, shifting the SRAS curve to the left

Example of how increased costs can affect SRAS?

A rise in oil prices increases transportation and production costs across

Example of how a decrease in costs can affect SRAS?

A significant discovery of natural resources, such as shale gas, lowers the cost of energy

How do firms respond to a decrease in costs?

Firms can produce more at lower costs, shifting SRAS curve rightward

How did the 2008 oil price shock lead to a shift let of SRAS?

The spike in oil prices led to increased costs for energy dependent industries also contributing to the global economic slowdown

What are the factors causing changes in SRAS?

1. Changes in the costs of raw materials and energy

2. Changes in interest rates

3. Changes in tax rates

How does a stronger domestic currency affect the cost of goods and services?

Imports become cheaper, reducing production costs

How does a weaker domestic currency affect the cost of goods and services?

Makes imports more expensive, increasing production costs

What is the impact of an appreciation of the domestic currency on SRAS?

Lower production costs shift the SRAS curve to the right

What is the impact of a depreciation of the domestic currency on SRAS?

Higher production costs shift the SRAS curve to the left

What is a real-world example of depreciation causing a shift to the left in SRAS?

Post Brexit depreciation of the British pound due to import costs increasing for UK firms

How do higher tax rates affect SRAS?

They increase costs, reducing supply

How do lower tax rates affect SRAS?

They decrease costs, increasing supply

How do higher tax rates affect businesses?

They affect their cost structures and profitability

What is an example of how decreased tax rates lead affect the SRAS curve?

The 2018 US Tax cuts and Jobs act lead to the reduction in corporate tax rates in the US lowering production costs for businesses leading to a rightward shift of the SRAS curve

Who created the analysis of sticky wages?

Keynes

What was the analysis of sticky wages and prices helpful for?

It helps to explain why the SRAS curve slopes upwards

Who’s work emphasised the role of AD in influencing economic output?

Keynes

Which economist highlighted the importance of monetary policy and expectations in the economy?

Friedman

What part of Friedman’s work informs the long term implications of shifts in LRAS?

His work on the natural rate of unemployment