MacroeconomicsLesson 3 of 5 in the course The Aggregate Demand/Aggregate Supply Model

Productivity, Input Costs, and Supply Shocks in Aggregate Supply

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

Save course
Lesson progress
0 / 5

Your progress is kept in this browser only.Sign up to save it

Summary

Productivity describes how much output can be produced with a given quantity of inputs, especially labor. A common measure is output per worker; GDP per capita is also used as an indicator of average output per person.

When workers and firms become more productive, the same amount of labor can produce more goods and services. Productivity can improve through better technology, worker skills, organization, or production methods. Over time, such improvements expand the economy's productive capacity.

All flashcards

Productivity
The amount of output that can be produced with a given quantity of inputs.
Why do higher input prices shift SRAS left?
Higher production costs make firms less willing to supply output at each price level.
Stagflation
A combination of stagnant or falling output, high unemployment, and inflation.
Supply shock
An unexpected event that changes input availability or costs and affects production.
Potential GDP
The output an economy can produce when its resources are fully employed.

Quiz questions

  1. When productivity rises, how do aggregate supply curves typically change over time?Answer: SRAS and LRAS shift right as current production and potential GDP increase.
  2. If aggregate demand is unchanged, what typically follows a rightward shift in SRAS?Answer: Real GDP rises, while the price level faces downward pressure.
  3. If widely used input prices rise and aggregate demand is unchanged, what is a typical short-run result?Answer: Real GDP falls and the price level rises.
  4. An unexpected freeze destroys crops. What is the likely aggregate-supply effect?Answer: Aggregate supply shifts left because fewer agricultural goods are available.
  5. If many workers leave civilian jobs to serve in a war, what can happen to aggregate supply?Answer: Both SRAS and LRAS can shift left as labor and potential output decline.

Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

More in Macroeconomics

All Macroeconomics lessons
MacroeconomicsFederal Reserve Structure, Banking Services, and Consumer Protection5 flashcards · 5 quiz questions · 4 gamesPlay free →MacroeconomicsMonetary Policy Transmission, Countercyclical Responses, and the Zero Lower Bound5 flashcards · 5 quiz questions · 4 gamesPlay free →MacroeconomicsInflation’s Effects on Purchasing Power, Price Signals, and Planning5 flashcards · 5 quiz questions · 4 gamesPlay free →MacroeconomicsU.S. Unemployment Patterns and International Comparisons5 flashcards · 5 quiz questions · 4 gamesPlay free →MacroeconomicsAggregate Demand, Supply, and Equilibrium in the AD–AS Model5 flashcards · 5 quiz questions · 4 gamesPlay free →MacroeconomicsAggregate Demand Shifts: Spending, Confidence, and Policy5 flashcards · 5 quiz questions · 4 gamesPlay free →