Aggregate supply

Aggregate supply

Aggregate supply	Aggregate supply is the total amount of goods and services produced by an economy in a year
Short run	Short run is when all the factors of production do not change do not change so there is a positive relationship between output and average price levels.
Shifts in sras	A change in anything other than price level will result in a shift in the SRAS curve Supply side shocks Typical changes- A change in the wage rates A change in raw materials A change in the price of imports A change in government indirect taxes and subsidies
Combining AD and AS in the short run	The economy will meet at the equalibrium
Long run aggregate supply	New classical LRAS Beleif in the effeciency of the market/ little gov. intervention    LRAS is vertical at Full employment level of output which represents potential output LRAS is based on quality and quantity independent of price level.
Keynesian AS	Phase 1: perfectly elastic phase- low output levels mean industries can increase output without incurring higher average costs due to spare capacity in the economy Phase 2: security phase- as the economy approaches Yf spare capacity is used up and FOP are scarce. Producers start competing for scarce FOP so increased output means higher costs so higher average price levels Phase 3: Economy has reached full capacity (yf) so output cannot be increased so competition amng firms for FOP results in increase average price levels (inflation) output cannot go up without a shift in the curve
Shifts in LRAS	Steady increase, move to the right if therwe is an improvement in quality of the factors of production, or increase. Factor of production Increase In quantity Increase in quality Land (all natural resources) Land reclamation (Netherlands reclaiming the sea from the north sea) Increase access to supply Discovery of new resources Tech advances that allow increased access or discovery of new resources Fertilizers irrigation Labor + entrepreneurship Increase of birth rate Immigration Decrease in natural rate of unemployment Education Training Re-training Apprenticeship programs capital Investment Tech advances that contribute to more efficient capital Resource and development
Supply side policies	Policies to increase supply Market based and interventionist Interventionist supply side policies (keynsisian) Market based supply side policies (classic) Investment in human capital (education) (training) Reduction in household income taxes Research and development Tax incentives, enforcing intellectual. Property rights or research and development in universities Reduction in corporate taxes Provision and maintenance of infrastructure Labor market reform 1)reduce trade union power 2) reduce or eliminate minimum wage 3) reduce unemployment benefits Direct support for businesses/industrial policies Anti trust laws, helping small/medium sized firms become established and grow Deregulation Infrastructure- large scale capital which is necessary for economic activity to take place, usually provided by government Privatizing Policies to increase competition