| What is Aggregate Supply? | -Aggregate Supply is the Total Output made in a Economy at a Given Price Level over a Given Time Period. |
| What are the 2 Types of Aggregate Supply? Detail them Both | -Short Run Aggregate Supply [SRAS] has the Same Curve as the Supply Curve in Markets. SRAS can be Inelastic [Steep] or Elastic [Less Steep]
-Long Run Aggregate Supply [LRAS] is when the Economy is at such a point of using all the Resources to Fall Capacity [On the PPF Curve] LRAS is Vertical because it is the Limit of Resources for the Nation so the Real GDP of LRAS is the Limit |
| How can the SRAS shift? | -This is to do with Changes to Costs of Production. Reduction of Cost of Production means more Output can be made at such Given Price.
-Such examples is if the Price of Oil went Down, Wages or Taxes cam down or if Efficiency [Productivity] changes as well]
-Out of the Blue AS [Leads to Price Increasing] may be just Decreased Rapidly from War or Natural Disasters |
| How can the LRAS shift? | -LRAS will only Change if the Factors of Production change in the Nation, affect the Capacity of the Economy |
| Name some Ways that LRAS can have their Position be affected | -More Technology, Skills, Training and Educated Workforce
-Demographic Changes - Skilled Workers coming in
-New resources being Supplied, allowing more Output
-Health Care better [Less Time Off & Retire Older]
-Government Rules Changing
-More Competition as Inefficient Firms go Boom
-Wanting Enterprise as allowing Economic Incentives or Guidance for New Firms |
| What is a Deterioration? | -When the Factors of Production reduces the Economy's Capacity leading to the LRAS Shifting to the Left. If Oil just Vanished then the Maximum Output will be Reduced |
| How can Banks play in where the LRAS sits? | -Firms need to Borrow off Banks to Invest to Increase their Output - via new Machinery eg
-Strong Banking System will promote Growth and more Money Available for Investment, leading to the PPF Growing
-Banking System therefore can Positively Impact the LRAS, SRAS and PPF |
| What is the Accelerator Process [Effect]
-Where would it be seen? | -This is when Firms makes 'Accelerated Investments' in Capital Goods [Machinery and Factories] to Increase Output and make Future Profit
-Can be seen when going through a Recovery or at the Start of a Boom - Times when Demand will Increase Fast and Firms need to Produce More, hence the Investment |
| How can the Multiplier and Accelerator Process work Together? | -For the Best: AD will be Expanding --> Firms Investing more, leading to More AD Shifting --> The AD Increasing is Multiplied, making National Income grow More --> Leads to a more 'Accelerated Investment..
-For the Worst: AD will Contract --> Firms Invest Less leading to Less AD --> National Income will Fall resulting in less Accelerator Investment... |
| Why may Keynesian Economists say the LRAS is Curved? | -Low Levels of Output has AD as Elastic - Spare Capacity in the Economy. This means Output can Rise without Prices Rising. If lots of Unemployed, then Firms can get more Workers without a Significant Price Rise.
-When the Curve slopes Upwards, the Economy is having Supply Problems [Bottlenecks] which increase Costs.
-Curve becomes Vertical when the Economy is at Fall Capacity. AS is at point where All Resources are being Used and Output can't Increase no more |
