Glossary
Government Regulations
Rules or laws imposed by the government that affect how businesses operate, often impacting production costs.
Example:
New environmental government regulations requiring stricter pollution controls could increase compliance costs for factories, leading to a leftward shift in SRAS.
Movement Along the SRAS Curve
A change in the quantity of real GDP supplied that occurs solely due to a change in the overall price level, assuming all other factors remain constant.
Example:
If the central bank's policies cause a general increase in prices, we would see a movement along the SRAS curve to a higher output level, not a shift of the curve itself.
Price Level
A measure of the average prices of goods and services in an economy.
Example:
When the overall price level in the economy rises, consumers find their purchasing power reduced, even if their nominal income stays the same.
Productivity and Technology
The efficiency with which inputs are converted into outputs, often improved by advancements in knowledge, methods, or machinery.
Example:
The widespread adoption of AI in manufacturing could dramatically boost productivity and technology, allowing firms to produce more goods with the same amount of resources, thus increasing SRAS.
Resource Prices and Availability
The cost and abundance of inputs used in production, such as labor, raw materials, and capital.
Example:
A global shortage of microchips would increase resource prices and availability for electronics manufacturers, likely leading to higher production costs and a decrease in aggregate supply.
Shift of the SRAS Curve
A change in the total quantity of goods and services supplied at every price level, caused by factors other than the price level itself.
Example:
A major technological breakthrough that lowers production costs for all firms would cause a significant shift of the SRAS curve to the right, indicating increased supply at every price level.
Short-Run Aggregate Supply (SRAS)
The total quantity of goods and services that firms are willing and able to produce at various price levels in the short run.
Example:
If the economy experiences a sudden surge in demand, firms might increase production, leading to a higher Short-Run Aggregate Supply (SRAS) as they respond to the rising price level.
Sticky Wages/Resource Prices
The idea that wages and other input costs do not immediately adjust to changes in the overall price level in the short run.
Example:
Even if inflation suddenly spikes, a company's labor contracts might prevent immediate wage increases, illustrating the concept of sticky wages.
Subsidies
Financial assistance or support provided by the government to businesses, typically to reduce production costs or encourage certain activities.
Example:
If the government offers subsidies to solar panel manufacturers, it lowers their effective production costs, encouraging them to produce more and shifting SRAS to the right.
Taxes (on businesses)
Mandatory financial charges levied by the government on businesses, which can affect their production costs and profitability.
Example:
An increase in corporate taxes would raise the cost of doing business, potentially leading firms to reduce output and shifting the SRAS curve to the left.