ILO:
a) The AS curve
b) Factors influencing short-run AS:
o changes in costs of raw materials and energy
o changes in exchange rates
o changes in tax rates
c) The distinction between movement along, and a shift of, the AS curve
d) Different shapes of the long-run AS curve:
o Keynesian
o classical
e) Factors influencing long-run AS:
o technological advances
o changes in relative productivity
o changes in education and skills
o changes in government regulations
o demographic changes and migration
o competition policy
f) The relationship between short-run AS and long-run AS
a) The AS curve
b) Factors influencing short-run AS:
o changes in costs of raw materials and energy
o changes in exchange rates
o changes in tax rates
c) The distinction between movement along, and a shift of, the AS curve
d) Different shapes of the long-run AS curve:
o Keynesian
o classical
e) Factors influencing long-run AS:
o technological advances
o changes in relative productivity
o changes in education and skills
o changes in government regulations
o demographic changes and migration
o competition policy
f) The relationship between short-run AS and long-run AS
AS curve
Illustrates the total value/quantity of output firms in the economy would be wiling and able to produce at a given price level.
SRAS
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SR at least 1 FOP fixed. Therefore if L was fixed
firms will have to pay overtime as they can
employ
more L quickly
.
As such, as real output
rises, costs per unit to the firms and industries are likely to rise. These
increased costs will tend to be passed on to the consumer through higher
prices, so the increase in real output has resulted in a rise in the average price
level.
Higher price level will also act as a profit motive for new firms to join incumbant firms and therefore raise the overall level of output at a higher price level. |
A change in price level from a shift in AD will cause a movement along the SRAS curve.
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Shifts SRAS
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Short-run AS will be influenced by firms' costs of production;
> Increase = contraction in SRAS (less W&A) > Decrease = expansion SRAS (more W&A) Changes in costs of raw materials and energy - US inflation rise driven by petrol prices Changes in exchange rates - SPICED - Russians Feel the Pinch of Rising Food Prices as Inflation Bites Changes in tax rates (VAT/Excise duty/corporation tax) - Teacake set to cost taxman £3.5m |
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Explain how the SRAS will shift based upon the following videos? (5 marks)
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Where a coffee costs wads of banknotes - BBC News
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British bands stung by post-Brexit touring costs
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LRAS
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Classical:
The classical LRAS curve is perfectly inelastic. In the L/R all FOP are variable. However FOP are finite and therefore there's a limited level of output an economy can achieve with it's existing factor endowment. Classical economists believe that in the long run all markets will clear, meaning that there can be no output gap in the long run, and instead the economy will always return to producing at its maximum potential level of output. |
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Keynesian:
Keynesian economists believe that it is possible to have a long-run equilibrium where markets do not clear and so there can be spare capacity in an economy in the long run. The shape of the Keynesian LRAS curve shows that when there is lots of spare capacity in the economy, it is possible to increase the level of real output with no resulting increase in the average price level. As spare capacity begins to be used up, a rise in real national output will cause the costs of the factors of production to rise, so the price level rises with output. Eventually, the economy will reach full employment, where output cannot be increased since all the factors of production are being utilised. This final section of the Keynesian LRAS curve is the same as the classical LRAS curve. |
Explain how Keynesian economic theory is relevant to UK economic policy during covid? (5 marks)
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Coronavirus warning: economic damage worse than Great Depression - BBC News
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Keynesian Economics (Revision Webinar Video)
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Factors influencing long-run AS:
Long-run AS in an economy will be affected by factors that change the quantity or quality of the factors of production; for example:
> Improved education will (in time) increase the quality of labour in the economy and increase LRAS.
> Immigration would increase the quantity (ignoring any effects on the average quality) of labour in the economy, also leading to an increase in LRAS.
> Improved education will (in time) increase the quality of labour in the economy and increase LRAS.
> Immigration would increase the quantity (ignoring any effects on the average quality) of labour in the economy, also leading to an increase in LRAS.
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Assess the impact of recent Government education policy on economic performance. (10 marks)
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Assess the impact of China's economic policy reform since 1978. (10 marks)
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Why are England's schools at breaking point?
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How China became a superpower: 40 years of economic reform | DW News
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Research Task:
Investigate either a trend or actual policy associated to the following examples. Giving an explenation as to how they will influence the LRAS and why:
o technological advances o changes in relative productivity
o changes in education and skills
o changes in government regulations
o demographic changes and migration
o competition policy
Investigate either a trend or actual policy associated to the following examples. Giving an explenation as to how they will influence the LRAS and why:
o technological advances o changes in relative productivity
o changes in education and skills
o changes in government regulations
o demographic changes and migration
o competition policy
Revision webinars
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Y1/IB 24) Aggregate Supply - SRAS & LRAS (Classical and Keynes)
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Revision Video: Productivity Growth in the UK 2018
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