Short Run Aggregate Supply 2.3.2

What is Short Run Aggregate Supply (SRAS)?

The relationship between planned national output (GDP and the general price level).

What assumption is made when drawing the SRAS curve?

We hold the state of technology and production costs constant

When will the SRAS curve shift?

When there is a change in the supply costs of firms throughout the economy.

What is the effect on the SRAS curve when a firms costs increase?

Causes an inward shift. Less can be produced at each general price level.

What is the effect on the SRAS curve when a firms costs decrease?

Causes an outward shift. More can be produced at each general price level.

What are some factors causing shifts in short run aggregate supply?

• Unit wage costs e.g. minimum wage

• Labour productivity

• Key raw materials and component prices, and energy prices

• Business indirect taxes, subsidies, VAT

• Cost of imported material (affected by exchange rate and global prices)

• Supply shocks e,g, hurricane, drought, political crisis

What are some examples of supply shocks?

• Steep rise in oil and gas prices or other commodities used in production

• Political turmoil/ civil unrest/ major strikes

• Supply shut-downs caused by a public health crisis

• Natural disasters causing a sharp fall in production

• Unexpected breakthroughs in production