Aggregate Supply | Notes
What is aggregate supply?
The total planned level of output in the economy at each price level.
What factors affect short-run aggregate supply?
Costs of production e.g. productivity, wages, raw material prices, exchange rates
What is long-run aggregate supply?
The productive potential of the economy.
What factors affect long-run aggregate supply?
Supply-side policies.
What is the difference between the classical and Keyenesian LRAS curve?
In the classical model, the economy operates at full capacity in the long-run. Even if wages and prices change, markets are efficient so they adjust to maintain full employment.
The Keynesian model suggests that the economy can have spare capacity, even in the long-run, as factors of production can be under-utilised.
Summary questions
- What is aggregate supply?
- What factors affect short-run aggregate supply?
- What is long-run aggregate supply?
- What factors affect long-run aggregate supply?
- What is the difference between the classical and Keyenesian LRAS curve?