2.3 Aggregate supply

Aggregate supply = the total…

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

Why is the AS curve upwards sloping

Firms respond to incentives

A movement in AS is caused by a ….

Shift in AD

a shift of AS is caused when there is….

A change in conditions of supply

Short run AS is influenced by…

Firms cost of production

What factors are part of firms cost of production (5)

TWERP: taxation, wages, exchange rate, raw materials, productivity

Classical LRAS is _________ _______

Perfectly inelastic

Classical LRAS shows….

Full employment of factors of production

Keynesian LRAS argue that an economy can…

Be below full capacity in the long run

Keynesians believe that the economy can be below full capacity in LRAS because… (2)

Wages are sticky, negative multiplier effect

Factors influencing LRAS: (5)

Education, migration, health, technological advances and changes in productivity

How do technological advances affect LRAS

Increase quality + productivity

How do changes in productivity affect LRAS?

Increase in quality and quantity

How do improvements in health affect LRAS?

Improved quality of NHS, increased labour force

How do changes in migration affect LRAS?

Increase = less labour shortages (unless skills are mismatched)

How do changes in education affect LRAS?

An increase in quality will cause increase in productivity and less unemployment