Short Run Aggregate Supply Curve Flashcards, test questions and answers

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What is Short Run Aggregate Supply Curve?

The short run aggregate supply (SRAS) curve is a graphical representation of the relationship between a nation’s price level and real output or real gross domestic product (GDP). The SRAS curve typically slopes upward, indicating that as prices increase, so does real output. This represents the idea that firms can produce more at higher prices because they have access to greater resources and are willing to pay higher wages for additional labor. This also implies that when prices fall, firms are less willing to hire additional workers and produce fewer goods and services.The SRAS curve is important in macroeconomic analysis because it helps economists understand how changes in aggregate demand (AD) affect the economy’s overall production level in the short run. Specifically, an increase in AD shifts out the SRAS curve which leads to an increase in output and GDP. Alternatively, if AD decreases, then the SRAS will shift inward leading to lower output.In addition to being used for analysis purposes, the SRAS can also be used by policymakers as a tool for developing policies aimed at achieving long-term economic growth and stability. For example, if there is an increase in consumer spending due to tax cuts or other incentive programs then policy makers may use this information from the SRAS curve as justification for implementing these policies since they will likely lead to increases in overall economic activity which would benefit all parties involved.