2.3.2 Shifts in AS

• What does aggregate supply (AS) represent?

  Total goods and services
• Aggregate supply reflects the potential output level an economy can achieve, determined by its productive capacity and available resources
• In the long run, prices and wages are fully flexible
• Short-run aggregate supply adjusts when prices and wages are fixed.
• Long-run aggregate supply shifts when all resources are fully employed.
• Order the following factors based on their effect on SRAS:

  1️⃣ Increase in wage rates

  2️⃣ Increase in raw material prices

  3️⃣ Improvement in technology

  4️⃣ Lower government taxes

  5️⃣ Depreciation of exchange rates
• An increase in wage rates increases production costs, shifting SRAS to the left
• What happens to SRAS if raw material prices increase?

  Shifts left
• Technological improvements reduce production costs and shift SRAS to the right.
• Lower taxes or increased subsidies reduce production costs, shifting SRAS to the right
• A depreciation of the exchange rate makes imports cheaper and shifts SRAS to the right.

  False
• Match the factor with its effect on SRAS:

  Increase in wage rates ↔️ Left shift

  Improvement in technology ↔️ Right shift
• An increase in wage rates increases production costs, shifting SRAS to the left
• Improvements in technology reduce production costs, shifting SRAS to the right
• A depreciation of the exchange rate shifts SRAS to the left
• What happens to SRAS when technology improves and increases productivity?

  Shifts to the right
• An increase in wage rates increases production costs, shifting SRAS to the left
• Improvements in technology reduce production costs, shifting SRAS to the right
• A depreciation of the exchange rate can shift SRAS to the left.
• What is the effect on SRAS when government policies reduce taxes or increase subsidies?

  Shifts to the right
• An increase in wage rates increases production costs, shifting SRAS to the left
• Improvements in technology reduce production costs, shifting SRAS to the right
• A depreciation of the exchange rate makes imports cheaper and shifts SRAS right.

  False
• What is the effect on SRAS when raw material prices increase?

  Shifts to the left
• An increase in wage rates increases production costs, shifting SRAS to the left
• Improvements in technology reduce production costs, shifting SRAS to the right
• An increase in wage rates increases production costs, shifting SRAS to the left
• Improvements in technology reduce production costs, shifting SRAS to the right
• Order the following factors based on their effect on SRAS:

  1️⃣ Increase in wage rates

  2️⃣ Increase in raw material prices

  3️⃣ Exchange rate depreciation

  4️⃣ Improvement in technology

  5️⃣ Lower taxes/subsidies
• An increase in wage rates increases production costs, shifting SRAS to the left
• Improvements in technology reduce production costs, shifting SRAS to the right
• What is the effect on SRAS when the exchange rate depreciates?

  Shifts to the left
• An increase in wage rates increases production costs, shifting SRAS to the left
• Improvements in technology reduce production costs, shifting SRAS to the right
• An increase in wage rates increases production costs, shifting SRAS to the left
• Improvements in technology reduce production costs, shifting SRAS to the right
• A depreciation of the exchange rate shifts SRAS to the right.

  False
• What is the effect on SRAS when raw material prices decrease?

  Shifts to the right
• Technological progress enhances productivity, leading to an outward shift of the LRAS
• Investments in new capital expand productive capacity, shifting LRAS to the right