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<title>DP Economics: Unit 3.2(2): Variations in economic activity - aggregate supply(AS)</title>
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style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35118/unit-2111-market-power-theory-of-production-and-costs-hl.html" title="Unit 2.11(1) Market power - Theory of production and costs (HL)">Unit 2.11(1) Market power - Theory of production and costs (HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35125/unit-2112-market-power-perfect-competitionhl.html" title="Unit 2.11(2) Market power - Perfect competition(HL)">Unit 2.11(2) Market power - Perfect competition(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35147/unit-2113-market-power-monopolyhl.html" title="Unit 2.11(3) Market power - Monopoly(HL)">Unit 2.11(3) Market power - Monopoly(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35151/unit-2114-market-power-monopolistic-competitionhl.html" title="Unit 2.11(4) Market power - Monopolistic competition(HL)">Unit 2.11(4) Market power - Monopolistic competition(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35153/unit-2115-market-power-oligopolyhl.html" title="Unit 2.11(5) Market power - Oligopoly(HL)">Unit 2.11(5) Market power - Oligopoly(HL)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../41603/economics-real-world-examples-and-extension-material-.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43378/opportunity-cost-and-production-possibility-curves.html" title="Opportunity cost and production possibility curves">Opportunity cost and production possibility curves</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42559/demand-theory.html" title="Demand theory">Demand theory</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41886/the-price-mechanism.html" title="The price mechanism">The price mechanism</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43188/market-demand-and-supply.html" title="Market demand and supply">Market demand and supply</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41705/demerit-goods.html" title="Demerit goods">Demerit goods</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42275/market-failure-and-climate-change.html" title="Market failure and climate change">Market failure and climate change</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42925/market-power.html" title="Market power">Market power</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42099/applying-game-theory.html" title="Applying game theory">Applying game theory</a></li></ul></ul><li class="ancestor parent" style="padding-left: 14px"><i class="expander fa fa-caret-right fa-rotate-90"></i><a class="" href="../34407/chapter-3-macroeconomics.html" title="Chapter 3: Macroeconomics">Chapter 3: Macroeconomics</a></li><ul class="level-2 expanded"><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34355/unit-311-measuring-the-level-of-economic-activity.html" title="Unit 3.1(1): Measuring the level of economic activity">Unit 3.1(1): Measuring the level of economic activity</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34432/unit-312-measuring-economic-development.html" title="Unit 3.1(2): Measuring Economic Development">Unit 3.1(2): Measuring Economic Development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34485/unit-321-variations-in-economic-activity-aggregate-demand-ad-.html" title="Unit 3.2(1): Variations in economic activity - aggregate demand (AD) ">Unit 3.2(1): Variations in economic activity - aggregate demand (AD) </a></li><li class="current" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="unit-322-variations-in-economic-activity-aggregate-supplyas.html" title="Unit 3.2(2): Variations in economic activity - aggregate supply(AS)">Unit 3.2(2): Variations in economic activity - aggregate supply(AS)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34758/unit-331-macroeconomic-objectives-economic-growth.html" title="Unit 3.3(1) Macroeconomic objectives: economic growth">Unit 3.3(1) Macroeconomic objectives: economic growth</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34771/unit-332-macroeconomic-objectives-unemployment-.html" title="Unit 3.3(2) Macroeconomic objectives: unemployment ">Unit 3.3(2) Macroeconomic objectives: unemployment </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34778/unit-333-macroeconomic-objectives-inflation-and-deflation--1.html" title="Unit 3.3(3) Macroeconomic objectives: inflation and deflation ">Unit 3.3(3) Macroeconomic objectives: inflation and deflation </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34925/unit-341-economics-of-inequality-and-poverty-1.html" title="Unit 3.4(1) Economics of inequality and poverty">Unit 3.4(1) Economics of inequality and poverty</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34946/unit-342-policies-to-improve-equality-equity-and-poverty.html" title="Unit 3.4(2) Policies to improve equality, equity and poverty">Unit 3.4(2) Policies to improve equality, equity and poverty</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34993/unit-35-government-management-of-the-economy-monetary-policy-1.html" title="Unit 3.5 Government management of the economy – monetary policy">Unit 3.5 Government management of the economy – monetary policy</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34962/unit-36-government-management-of-the-economy-fiscal-policy-1.html" title="Unit 3.6 Government management of the economy – fiscal policy">Unit 3.6 Government management of the economy – fiscal policy</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35017/unit-371-market-based-supply-side-policies--1.html" title="Unit 3.7(1) Market based supply-side policies ">Unit 3.7(1) Market based supply-side policies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35018/unit-372-interventionist-supply-side-policies-.html" title="Unit 3.7(2) Interventionist supply-side policies ">Unit 3.7(2) Interventionist supply-side policies </a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../45803/economics-real-world-examples-and-extension-material--1.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42639/measuring-economic-well-being-1.html" title="Measuring economic well-being">Measuring economic well-being</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43044/inflation.html" title="Inflation">Inflation</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42350/inequality.html" title="Inequality">Inequality</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41639/inequity-1.html" title="Inequity">Inequity</a></li></ul></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../35414/chapter-4-the-global-economy.html" title="Chapter 4: The Global Economy">Chapter 4: The Global Economy</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35346/unit-41-benefits-of-international-trade-1.html" title="Unit 4.1 Benefits of international trade">Unit 4.1 Benefits of international trade</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35348/unit-4243-trade-protectionism-1.html" title="Unit 4.2/4.3 Trade protectionism">Unit 4.2/4.3 Trade protectionism</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35407/unit-44-economic-integration-.html" title="Unit 4.4 Economic integration ">Unit 4.4 Economic integration </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35409/unit-45-exchange-rates-1.html" title="Unit 4.5 Exchange rates">Unit 4.5 Exchange rates</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35413/unit-46-balance-of-payments--1.html" title="Unit 4.6 Balance of payments ">Unit 4.6 Balance of payments </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35675/unit-47-sustainable-development.html" title="Unit 4.7 Sustainable development">Unit 4.7 Sustainable development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35685/unit-48-measuring-development--1.html" title="Unit 4.8 Measuring development ">Unit 4.8 Measuring development </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35687/unit-49-barriers-to-economic-development-1.html" title="Unit 4.9 Barriers to economic development">Unit 4.9 Barriers to economic development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35702/unit-410-economic-growth-and-economic-development-strategies.html" title="Unit 4.10: Economic growth and economic development strategies">Unit 4.10: Economic growth and economic development strategies</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../45804/economics-real-world-examples-and-extension-material-.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41927/foreign-currency-1.html" title="Foreign currency">Foreign currency</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43532/exchange-rates-1.html" title="Exchange rates">Exchange rates</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43804/balance-of-payments.html" title="Balance of payments">Balance of payments</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41796/economic-development-1.html" title="Economic development">Economic development</a></li></ul></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../20132/units-1-2-microeconomics.html" title="Units 1-2: Microeconomics">Units 1-2: Microeconomics</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Unit 1: Introduction to economics">Unit 1: Introduction to economics</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20091/introductory-activity-1.html" title="Introductory activity">Introductory activity</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20093/unit-11-scarcity-choice-and-opportunity-cost.html" title="Unit 1.1: Scarcity, choice and opportunity cost">Unit 1.1: Scarcity, choice and opportunity cost</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21647/factors-of-production-1.html" title="Factors of production">Factors of production</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20114/economic-systems.html" title="Economic systems">Economic systems</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20134/public-and-private-sectors-1.html" title="Public and private sectors">Public and private sectors</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28055/unit-12-economics-as-a-social-science-1.html" title="Unit 1.2: Economics as a social science">Unit 1.2: Economics as a social science</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29921/circular-flow-of-national-income.html" title="Circular flow of national income">Circular flow of national income</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29829/unit-1-review-terms-1.html" title="Unit 1: Review terms">Unit 1: Review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../41600/introduction-to-economics-crossword-1.html" title="Introduction to economics crossword">Introduction to economics crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../4331/unit-1-multiple-choice-quiz.html" title="Unit 1: Multiple choice quiz">Unit 1: Multiple choice quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20177/unit-21-23-competitive-markets-demand-and-supply-1.html" title="Unit 2.1-2.3: Competitive markets - demand and supply">Unit 2.1-2.3: Competitive markets - demand and supply</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28517/unit-21-demand-1.html" title="Unit 2.1: Demand">Unit 2.1: Demand</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22349/determinants-of-demand-1.html" title="Determinants of demand">Determinants of demand</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29949/unit-22-supply-.html" title="Unit 2.2: Supply ">Unit 2.2: Supply </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20184/changes-to-supply-and-demand-.html" title="Changes to supply and demand ">Changes to supply and demand </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21992/practise-exercises-1.html" title="Practise exercises">Practise exercises</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../26112/gold-exchange-game-demand-and-supply-1.html" title="Gold exchange game: Demand and supply">Gold exchange game: Demand and supply</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20194/unit-23-competitive-market-equilibrium-1.html" title="Unit 2.3: Competitive market equilibrium">Unit 2.3: Competitive market equilibrium</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20144/producer-and-consumer-surplus-1.html" title="Producer and consumer surplus">Producer and consumer surplus</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../22351/veblen-goods-and-super-luxury-goods-1.html" title="Veblen goods and super luxury goods">Veblen goods and super luxury goods</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../25677/are-cryptocurrencies-the-new-tulipmania.html" title="Are Cryptocurrencies the new Tulipmania?">Are Cryptocurrencies the new Tulipmania?</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20472/unit-21-23-multiple-choice-quiz.html" title="Unit 2.1-2.3: Multiple choice quiz">Unit 2.1-2.3: Multiple choice quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20113/unit-24-consumer-and-producer-behaviour-hl-only-1.html" title="Unit 2.4: Consumer and producer behaviour (HL only)">Unit 2.4: Consumer and producer behaviour (HL only)</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../36073/behavioural-economics-consumer-biases-nudge-theory-hl-only-1.html" title="Behavioural economics: Consumer biases / nudge theory (HL only)">Behavioural economics: Consumer biases / nudge theory (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20378/business-objectives-hl-only.html" title="Business objectives (HL only)">Business objectives (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28741/unit-21-24-review-terms--1.html" title="Unit 2.1-2.4: Review terms ">Unit 2.1-2.4: Review terms </a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20195/unit-25-26-elasticity-1.html" title="Unit 2.5-2.6: Elasticity">Unit 2.5-2.6: Elasticity</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28713/unit-25-price-elasticity-of-demand-1.html" title="Unit 2.5: Price elasticity of demand">Unit 2.5: Price elasticity of demand</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21545/determinants-of-price-elasticity-.html" title="Determinants of price elasticity ">Determinants of price elasticity </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21532/ped-elasticity-and-sales-revenue.html" title="PED elasticity and sales revenue?">PED elasticity and sales revenue?</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21259/unit-25-income-elasticity-of-demand-yed.html" title="Unit 2.5: Income elasticity of demand (YED)">Unit 2.5: Income elasticity of demand (YED)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21200/unit-26-price-elasticity-of-supply.html" title="Unit 2.6: Price elasticity of supply">Unit 2.6: Price elasticity of supply</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20207/perfectly-elastic-inelastic-supply-curves.html" title="Perfectly elastic / inelastic supply curves">Perfectly elastic / inelastic supply curves</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20230/a-mathematical-note-about-elasticity-.html" title="A mathematical note about elasticity ">A mathematical note about elasticity </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39037/demand-and-supply-crossword.html" title="Demand and supply crossword">Demand and supply crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29021/unit-25-26-review-terms-1.html" title="Unit 2.5-2.6: Review terms">Unit 2.5-2.6: Review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20474/unit-25-26-multiple-choice-quiz--1.html" title="Unit 2.5-2.6: Multiple choice quiz ">Unit 2.5-2.6: Multiple choice quiz </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44474/unit-21-25-competitive-markets-quiz-1.html" title="Unit 2.1- 2.5: Competitive markets quiz">Unit 2.1- 2.5: Competitive markets quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20243/unit-27-the-role-of-government-in-microeconomics--1.html" title="Unit 2.7: The role of government in microeconomics ">Unit 2.7: The role of government in microeconomics </a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../26590/indirect-taxation.html" title="Indirect taxation">Indirect taxation</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20246/ped-and-the-burden-of-tax-hl-only-.html" title="PED and the burden of tax (HL only) ">PED and the burden of tax (HL only) </a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20277/government-subsidies--1.html" title="Government subsidies ">Government subsidies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29117/unit-27-indirect-tax-and-subsidy-review-terms-1.html" title="Unit 2.7: Indirect tax and subsidy review terms">Unit 2.7: Indirect tax and subsidy review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20287/price-controls-maximum-price--1.html" title="Price controls − maximum price ">Price controls − maximum price </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20288/minimum-price-.html" title="Minimum price ">Minimum price </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21540/minimum-wage-.html" title="Minimum wage ">Minimum wage </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../38849/labour-market-crossword-1.html" title="Labour market crossword">Labour market crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29260/unit-27-price-controls-review-terms-1.html" title="Unit 2.7: Price controls review terms">Unit 2.7: Price controls review terms</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20303/unit-28-210-market-failure--1.html" title="Unit 2.8-2.10: Market failure ">Unit 2.8-2.10: Market failure </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21543/unit-28-merit-goods--1.html" title="Unit 2.8: Merit goods ">Unit 2.8: Merit goods </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../23123/unit-28-demerit-goods-negative-externalities-1.html" title="Unit 2.8: Demerit goods / negative externalities">Unit 2.8: Demerit goods / negative externalities</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../38850/market-failure-crossword-1.html" title="Market failure crossword">Market failure crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29262/unit-29-economics-of-the-environment-and-public-goods--1.html" title="Unit 2.9: Economics of the environment and public goods ">Unit 2.9: Economics of the environment and public goods </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20332/unit-210-asymmetric-information-hl-only-1.html" title="Unit 2.10: Asymmetric information (HL only)">Unit 2.10: Asymmetric information (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29828/unit-28-210-market-failure-review-sheet.html" title="Unit 2.8-2.10: Market failure review sheet">Unit 2.8-2.10: Market failure review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29827/unit-28-210-market-failure-review-terms.html" title="Unit 2.8-2.10: Market failure review terms">Unit 2.8-2.10: Market failure review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20479/unit-27-210-multiple-choice-quiz--1.html" title="Unit 2.7-2.10: Multiple choice quiz ">Unit 2.7-2.10: Multiple choice quiz </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44501/unit-27-210-government-failure-revision-quiz-1.html" title="Unit 2.7-2.10 Government failure revision quiz">Unit 2.7-2.10 Government failure revision quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20330/unit-211-market-power-hl-only-1.html" title="Unit 2.11: Market power (HL only)">Unit 2.11: Market power (HL only)</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29835/assessment-map.html" title="Assessment map">Assessment map</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21528/production-hl-only.html" title="Production (HL only)">Production (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29978/revenue-theory-hl-only.html" title="Revenue theory (HL only)">Revenue theory (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20357/costs-of-production-hl-only.html" title="Costs of production (HL only)">Costs of production (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21286/economies-and-diseconomies-of-scale-hl-only.html" title="Economies and diseconomies of scale (HL only)">Economies and diseconomies of scale (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22494/long-run-average-cost-curves-hl-only.html" title="Long run average cost curves (HL only)">Long run average cost curves (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../29838/breakeven-hl-only.html" title="Breakeven (HL only)">Breakeven (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20340/economic-profit-hl-only.html" title="Economic profit (HL only)">Economic profit (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39082/market-power-crossword.html" title="Market power crossword">Market power crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../22495/revision-exercise-on-cost-and-revenue-hl-only.html" title="Revision exercise on cost and revenue (HL only)">Revision exercise on cost and revenue (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29845/unit-211-costs-revenue-and-profit-review-sheet-hl-only.html" title="Unit 2.11: Costs, revenue and profit review sheet (HL only)">Unit 2.11: Costs, revenue and profit review sheet (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44484/unit-211-multiple-choice-quiz-sl-units-1.html" title="Unit 2.11: Multiple choice quiz (SL units)">Unit 2.11: Multiple choice quiz (SL units)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29846/market-structures-hl-only-1.html" title="Market structures (HL only)">Market structures (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29981/perfect-competition-hl-only-1.html" title="Perfect competition (HL only)">Perfect competition (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../24486/profit-in-perfect-competition-hl-only-1.html" title="Profit in perfect competition (HL only)">Profit in perfect competition (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21302/efficiency-in-perfect-competition-hl-only.html" title="Efficiency in perfect competition (HL only)">Efficiency in perfect competition (HL only)</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20430/monopoly-hl-only-1.html" title="Monopoly (HL only)">Monopoly (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../24529/profit-and-revenue-maximisation-in-monopoly-hl-only-1.html" title="Profit and revenue maximisation in monopoly (HL only)">Profit and revenue maximisation in monopoly (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21306/a-comparison-of-monopoly-and-perfect-competition-hl-only-1.html" title="A comparison of monopoly and perfect competition? (HL only)">A comparison of monopoly and perfect competition? (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20435/monopolistic-competition-hl-only-1.html" title="Monopolistic competition (HL only)">Monopolistic competition (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20436/oligopoly-hl-only-1.html" title="Oligopoly (HL only)">Oligopoly (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22310/game-theory-hl-only-1.html" title="Game theory (HL only)">Game theory (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29918/unit-211-market-structures-review-sheet-hl-only-1.html" title="Unit 2.11: Market structures review sheet (HL only)">Unit 2.11: Market structures review sheet (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32337/unit-211-diagram-revision-.html" title="Unit 2.11: Diagram revision ">Unit 2.11: Diagram revision </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20480/unit-211-multiple-choice-quiz-hl-only-1.html" title="Unit 2.11: Multiple choice quiz (HL only)">Unit 2.11: Multiple choice quiz (HL only)</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32425/unit-212-the-markets-inability-to-achieve-equity-hl-only-1.html" title="Unit 2.12: The market’s inability to achieve equity (HL only)">Unit 2.12: The market’s inability to achieve equity (HL only)</a></li></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21842/unit-3-macroeconomics-.html" title="Unit 3: Macroeconomics ">Unit 3: Macroeconomics </a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../3942/unit-31-measuring-economic-activity-and-illustrating-its-variati-1.html" title="Unit 3.1: Measuring economic activity and illustrating its variations">Unit 3.1: Measuring economic activity and illustrating its variations</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20558/calculating-national-income-1.html" title="Calculating national income">Calculating national income</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21297/gdp-gni-as-a-measure-of-living-standards.html" title="GDP / GNI as a measure of living standards">GDP / GNI as a measure of living standards</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20567/national-income-statistics-1.html" title="National income statistics">National income statistics</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21580/the-business-cycle-1.html" title="The business cycle">The business cycle</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29931/unit-31-economic-activity-review-sheet-1.html" title="Unit 3.1: Economic activity review sheet">Unit 3.1: Economic activity review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20592/unit-32-variations-in-economic-activityaggregate-demand-and-aggr-1.html" title="Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply">Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29933/aggregate-demand-and-supply.html" title="Aggregate demand and supply">Aggregate demand and supply</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21582/components-of-aggregate-demand-1.html" title="Components of aggregate demand">Components of aggregate demand</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20634/equilibrium-in-macroeconomics-neo-classical-perspective-1.html" title="Equilibrium in macroeconomics (neo-classical perspective)">Equilibrium in macroeconomics (neo-classical perspective)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20439/equilibrium-in-macroeconomics-keynesian-perspective-1.html" title="Equilibrium in macroeconomics (keynesian perspective)">Equilibrium in macroeconomics (keynesian perspective)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21349/john-maynard-keynes-1.html" title="John Maynard Keynes">John Maynard Keynes</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20650/keynesian-v-free-market-debate--1.html" title="Keynesian v free market debate ">Keynesian v free market debate </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21342/changes-in-the-long-run-aggregate-supply-1.html" title="Changes in the long run aggregate supply">Changes in the long run aggregate supply</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30055/unit-32-aggregate-demand-and-supply-review-sheet-1.html" title="Unit 3.2: Aggregate demand and supply review sheet">Unit 3.2: Aggregate demand and supply review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20610/unit-35-and-36-demand-management-fiscal-and-monetary-policy-1.html" title="Unit 3.5 and 3.6: Demand management - fiscal and monetary policy">Unit 3.5 and 3.6: Demand management - fiscal and monetary policy</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30058/government-budget.html" title="Government budget">Government budget</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21585/fiscal-policy--1.html" title="Fiscal policy ">Fiscal policy </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21343/multiplier-hl-only.html" title="Multiplier (HL only)">Multiplier (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21795/monetary-policy--1.html" title="Monetary policy ">Monetary policy </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30071/independent-central-banks-1.html" title="Independent central banks">Independent central banks</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30083/unit-35-and-36-review-sheet.html" title="Unit 3.5 and 3.6 review sheet">Unit 3.5 and 3.6 review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20615/unit-37-supply-side-policies-1.html" title="Unit 3.7: Supply side policies">Unit 3.7: Supply side policies</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20651/the-role-of-supply-side-policies-1.html" title="The role of supply side policies">The role of supply side policies</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20622/market-based-and-interventionist-supply-side-policies--1.html" title="Market based and interventionist supply side policies ">Market based and interventionist supply side policies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39129/aggregate-demand-and-supply-crossword-1.html" title="Aggregate demand and supply crossword">Aggregate demand and supply crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30086/unit-37-review-sheet-1.html" title="Unit 3.7: Review sheet">Unit 3.7: Review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20755/unit-31-32-and-35-37-multiple-choice-quiz--1.html" title="Unit 3.1-3.2 and 3.5-3.7: Multiple choice quiz ">Unit 3.1-3.2 and 3.5-3.7: Multiple choice quiz </a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../44522/unit-31-32-and-35-37-revision-quiz-1.html" title="Unit 3.1-3.2 and 3.5-3.7: Revision quiz">Unit 3.1-3.2 and 3.5-3.7: Revision quiz</a></li><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20686/unit-33-macroeconomic-objectives.html" title="Unit 3.3: Macroeconomic objectives">Unit 3.3: Macroeconomic objectives</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30118/unemployment.html" title="Unemployment">Unemployment</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21351/types-of-unemployment.html" title="Types of unemployment?">Types of unemployment?</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21593/equilibrium-unemployment-.html" title="Equilibrium unemployment ">Equilibrium unemployment </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21594/disequilibrium-unemployment-1.html" title="Disequilibrium unemployment">Disequilibrium unemployment</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../30458/unemployment-review-sheet-1.html" title="Unemployment review sheet">Unemployment review sheet</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20713/inflation--1.html" title="Inflation ">Inflation </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20712/measuring-inflation-hl-only-1.html" title="Measuring inflation (HL only)">Measuring inflation (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20685/costs-of-inflation-and-deflation-1.html" title="Costs of inflation and deflation">Costs of inflation and deflation</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../30465/inflation-review-sheet.html" title="Inflation review sheet">Inflation review sheet</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20716/unemployment-v-inflation-trade-off-hl-only-1.html" title="Unemployment v inflation trade off (HL only)">Unemployment v inflation trade off (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39133/macroeconomic-objectives-crossword-1.html" title="Macroeconomic objectives crossword">Macroeconomic objectives crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44511/unit-33-macroeconomic-indicators-revision-quiz-1.html" title="Unit 3.3: Macroeconomic indicators revision quiz">Unit 3.3: Macroeconomic indicators revision quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20741/unit-34-economics-of-inequality-and-poverty-1.html" title="Unit 3.4: Economics of inequality and poverty">Unit 3.4: Economics of inequality and poverty</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32398/inequality-1.html" title="Inequality">Inequality</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21356/the-role-of-spending-and-taxation-on-inequality--1.html" title="The role of spending and taxation on inequality ">The role of spending and taxation on inequality </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21313/consequences-of-economic-growth-1.html" title="Consequences of economic growth">Consequences of economic growth</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30257/economic-growth-and-inequality-review-sheet-1.html" title="Economic growth and inequality review sheet">Economic growth and inequality review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20756/unit-33-34-multiple-choice-.html" title="Unit 3.3-3.4: Multiple choice ">Unit 3.3-3.4: Multiple choice </a></li></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21844/unit-4-global-economy.html" title="Unit 4: Global economy">Unit 4: Global economy</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../21367/unit-41-benefits-of-international-trade.html" title="Unit 4.1: Benefits of international trade">Unit 4.1: Benefits of international trade</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30529/benefits-of-international-trade.html" title="Benefits of international trade">Benefits of international trade</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20823/absolute-and-comparative-advantage-hl-only-1.html" title="Absolute and comparative advantage (HL only)">Absolute and comparative advantage (HL only)</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20845/unit-42-43-trade-protection-1.html" title="Unit 4.2-4.3: Trade protection">Unit 4.2-4.3: Trade protection</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32419/barriers-to-trade-calculations-are-hl-only-1.html" title="Barriers to trade (calculations are HL only)">Barriers to trade (calculations are HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21610/case-study-on-tata-steel-1.html" title="Case study on Tata Steel">Case study on Tata Steel</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../23455/the-defence-industry-1.html" title="The Defence industry">The Defence industry</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30610/unit-41-43-review-sheet-1.html" title="Unit 4.1-4.3: Review sheet">Unit 4.1-4.3: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20894/unit-44-economic-integration--1.html" title="Unit 4.4: Economic integration ">Unit 4.4: Economic integration </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30634/economic-integration-some-hl-tasks-1.html" title="Economic integration (some HL tasks)">Economic integration (some HL tasks)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20840/world-trade-organisation-wto-1.html" title="World trade organisation (WTO)">World trade organisation (WTO)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30635/unit-44-review-sheet-1.html" title="Unit 4.4: Review sheet">Unit 4.4: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20853/unit-45-exchange-rates-1.html" title="Unit 4.5: Exchange rates">Unit 4.5: Exchange rates</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30611/floating-exchange-rates-1.html" title="Floating exchange rates">Floating exchange rates</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../31824/fixed-managed-exchange-rate-systems-some-hl-tasks-1.html" title="Fixed / managed exchange rate systems (some HL tasks)">Fixed / managed exchange rate systems (some HL tasks)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21624/the-market-for-foreign-exchange-1.html" title="The market for foreign exchange">The market for foreign exchange</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30614/unit-45-review-sheet-1.html" title="Unit 4.5: Review sheet">Unit 4.5: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20859/unit-46-balance-of-payments-1.html" title="Unit 4.6: Balance of payments">Unit 4.6: Balance of payments</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30624/balance-of-payments--1.html" title="Balance of payments ">Balance of payments </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21386/current-account-hl-only-1.html" title="Current account (HL only)">Current account (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20872/the-marshall-lerner-condition-j-curve-hl-only-1.html" title="The Marshall-Lerner condition / J curve (HL only)">The Marshall-Lerner condition / J curve (HL only)</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20899/units-41-46-multiple-choice-quiz--1.html" title="Units 4.1-4.6: Multiple choice quiz ">Units 4.1-4.6: Multiple choice quiz </a></li><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../42989/unit-41-46-multiple-choice-quiz-ii-1.html" title="Unit 4.1-4.6: Multiple choice quiz II">Unit 4.1-4.6: Multiple choice quiz II</a></li><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../39438/unit-41-46-international-trade-crossword-1.html" title="Unit 4.1-4.6: International trade crossword">Unit 4.1-4.6: International trade crossword</a></li><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32423/unit-47-sustainable-development--1.html" title="Unit 4.7: Sustainable development ">Unit 4.7: Sustainable development </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../26092/water-scarcity-activity-1.html" title="Water scarcity activity">Water scarcity activity</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32426/sustainable-development.html" title="Sustainable development">Sustainable development</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20928/unit-48-measuring-development--1.html" title="Unit 4.8: Measuring development ">Unit 4.8: Measuring development </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30686/measuring-development-1.html" title="Measuring development">Measuring development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21627/economic-development--1.html" title="Economic development ">Economic development </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30679/unit-47-48-review-sheet.html" title="Unit 4.7-4.8: Review sheet">Unit 4.7-4.8: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Unit 4.9: Barriers to development">Unit 4.9: Barriers to development</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30727/barriers-to-development-in-international-trade-1.html" title="Barriers to development in International trade">Barriers to development in International trade</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32430/unit-410-economic-growth-andor-economic-development-strategies-1.html" title="Unit 4.10: Economic growth and/or economic development strategies">Unit 4.10: Economic growth and/or economic development strategies</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30687/the-role-of-domestic-factors-1.html" title="The role of domestic factors">The role of domestic factors</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30688/the-role-of-international-trade-and-development-1.html" title="The role of international trade and development">The role of international trade and development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30689/the-role-of-foreign-direct-investment-fdi-1.html" title="The role of foreign direct investment (FDI)">The role of foreign direct investment (FDI)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../25240/the-role-of-foreign-aid--1.html" title="The role of foreign aid ">The role of foreign aid </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30819/multilateral-development-assistance-1.html" title="Multilateral development assistance">Multilateral development assistance</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21632/the-role-of-international-debt-1.html" title="The role of international debt">The role of international debt</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../25242/the-balance-between-markets-and-intervention-1.html" title="The balance between markets and intervention">The balance between markets and intervention</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30926/unit-49-410-review-sheet.html" title="Unit 4.9 - 4.10: Review sheet">Unit 4.9 - 4.10: Review sheet</a></li></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21380/assessment.html" title="Assessment">Assessment</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Internal assessment ">Internal assessment </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20608/how-to-write-your-ia-student-handout.html" title="How to write your IA? (student handout)">How to write your IA? (student handout)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21428/how-to-interpret-the-assessment-criteria-1.html" title="How to interpret the assessment criteria?">How to interpret the assessment criteria?</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Grading practise ">Grading practise </a></li><ul class="level-3 "><li class=" parent" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Sample 3a">Sample 3a</a></li><ul class="level-4 "><li class="" style="padding-left: 56px"><i class="expander fa fa-caret-right "></i><a class="" href="../32083/sample-3b-1.html" title="Sample 3b">Sample 3b</a></li></ul></ul></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32022/assessment-markbands-1.html" title="Assessment markbands">Assessment markbands</a></li></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../4332/exam-style-questions.html" title="Exam style questions">Exam style questions</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Paper 1 style examination questions">Paper 1 style examination questions</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../40100/unit-211-212-questions.html" title="Unit 2.11-2.12 questions">Unit 2.11-2.12 questions</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../45102/paper-1-guidance-on-essay-writing-1.html" title="Paper 1 guidance on essay writing">Paper 1 guidance on essay writing</a></li></ul></ul></nav> </div> </div> </div> </div><div style="margin-top: 20px;"><style type="text/css">
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<div id="main-column" class="span9"> <article id="unit-322-variations-in-economic-activity-aggregate-supplyas" style="margin-top: 16px;">
<h1 class="section-title">Unit 3.2(2): Variations in economic activity - aggregate supply(AS)</h1>
<ul class="breadcrumb"><li><a title="Home" href="../../../economics.html"><i class="fa fa-home"></i></a><span class="divider">/</span></li><li><span class="gray">Textbook</span><span class="divider">/</span></li><li><span class="gray">Chapter 3: Macroeconomics</span><span class="divider">/</span></li><li><span class="active">Unit 3.2(2): Variations in economic activity - aggregate supply(AS)</span></li></ul>
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<div class="intro-card"><div class="bg-cover" style="background-image: url("/media/ib/economics/images/textbook/ad-and-as/sras.jpg");"></div><img src="../../../ib/economics/images/textbook/ad-and-as/sras-1.jpg" style="display: none"><div class="content"><p class="text">Aggregate supply is the total quantity of all goods and services the economy can produce at a given price level and in a given time period. At a microeconomic level, we consider the supply of a particular good in a market produced by all the firms in that market. Aggregate supply adds together the supply of goods from all the markets in the economy.</p></div></div><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h3>What you should know by the end of this chapter:</h3></div></div></div><ul><li>Defining aggregate supply<img alt="" height="254" src="../../../ib/economics/images/textbook/ad-and-as/aggregate-supply-front.jpg" style="float: right;" width="446"></li><li>Short-run aggregate supply (SRAS) curve</li><li>Determinants of short-run aggregate supply</li><li>Changes in short-run aggregate supply</li><li>Short-run equilibrium national income</li><li>Monetarist/new classical view of the long-run aggregate supply curve (LRAS) curve</li><li>Long-run equilibrium at full employment level of output</li><li>Inflationary and deflationary/recessionary gaps</li><li>Keynesian view of the aggregate supply curve</li><li>Equilibrium in the Keynesian model</li><li>Changes in aggregate supply over the long run<hr class="hidden"></li></ul><div class="greyBg"><h3>Revision material</h3><p><img alt="" src="../../../ib/economics/images/textbook/revision-material/logo.jpg" style="width: 200px; height: 95px; float: left;">The link to the attached pdf is revision material from <strong>Unit 3.2(2) Variations in economic activity - aggregate supply(AS). </strong>The revision material can be downloaded as a student handout.</p><p><a href="../../../media/ib/economics/images/textbook/ad-and-as/aggregate-supply/aggregate-supply-revision-notes.pdf.html" target="_blank" title="Revision"><img class="ico" src="../../../thinkib/icons/revision.png"> Revision notes</a></p></div><div class="blueBg"><h3><strong>Definition of aggregate supply</strong></h3><p>Aggregate supply is the total quantity of all goods and services the economy can produce at a given price level and in a given time period. At a microeconomic level, we consider the supply of a particular good in a market produced by all the firms in that market. Aggregate supply adds together the supply of goods from all the markets in the economy. Aggregate supply is made up of the output of all the different types of producers in the economy from small and medium-sized enterprises (SMEs) up to multinational corporations (MNCs) and state-run industries.</p></div><div class="pinkBg"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4><strong>Inquiry case example - The importance of SMEs as part of aggregate supply</strong></h4></div></div></div><p><img alt="" height="247" src="../../../ib/economics/images/textbook/ad-and-as/sras-1.jpg" style="float: left;" width="362">Brazil has over 6 million small and medium-sized enterprises (SMEs) spread across the primary, secondary and tertiary sectors<strong> </strong>of the economy. In Brazil, SMEs are any business that has a revenue of below $38 million. They are an important part of aggregate supply in Brazil, accounting for 20 per cent of GDP and over 50 per cent of employment. Brazil’s SMEs are made up of businesses across a variety of different markets such as restaurants, theatres, private healthcare, web-based services and hairdressers, etc.</p><hr class="hidden"><p>SMEs have given a significant opportunity for women in the Brazilian economy with 52 per cent of SMEs being owned and managed by female entrepreneurs. Information technology dominates much of the growth in SMEs with nearly 30 per cent of the 250 fastest-growing Brazilian SMEs focused on information technology and communications.</p><p><a href="../../../media/ib/economics/images/textbook/ad-and-as/aggregate-supply/brazil-smes.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></p><h5>Questions</h5><p><strong>a. Define the term aggregate supply. [2]</strong></p><section class="tib-hiddenbox"><p>Aggregate supply is the total quantity of all goods and services the economy can produce at a given price level and in a given time period.</p></section><p><strong>b. Outline the difference between the primary, secondary and tertiary sectors that make up the supply side of the economy. [4]</strong></p><section class="tib-hiddenbox"><p>The difference between the three different sections are:</p><ul><li>Primary sector involves mining, agriculture and fishing</li><li>Secondary sector is manufacturing goods</li><li>Tertiary sector is the provision of services.</li></ul></section><p><strong>c. Explain the importance of SMEs in Brazil’s aggregate supply. [4]</strong></p><section class="tib-hiddenbox"><p>SMEs in Brazil account for 20% of its GDP and over 50% of its employment. This means SMEs have a significant influence on Brazil's total output and aggregate supply.</p></section><h5><strong>Investigation</strong></h5><p><strong>Research into the importance of SMEs in another economy to examine their importance to that country’s aggregate supply. </strong></p></div><div class="blueBg"><h3><strong>Short Run Aggregate Supply (SRAS)</strong></h3><h4><strong>Definition of the short run</strong></h4><p>The short-run in this model is the time period when the price level in the economy can change but the cost of factors of production is held constant.</p><h4><strong>The short-run aggregate supply curve</strong><img alt="" height="321" src="../../../ib/economics/images/textbook/ad-and-as/as-curve(1).jpg" style="float: right;" width="437"></h4><p>There is a positive relationship between the average price level and the short-run aggregate supply curve. As the average price level rises firms will increase output to take advantage of higher profits from a higher price level and a higher price covers the cost of increasing output. Diagram 3.5 shows how an increase in the average price level from P to P1 leads to a movement along the short-run aggregate supply curve and real output increases from Y to Y1.</p><hr class="hidden"><h4><strong>Changes in the short-run aggregate supply </strong></h4><p><img alt="" height="299" src="../../../ib/economics/images/textbook/ad-and-as/shifts-in-sras(1).jpg" style="float: left;" width="420">The short-run aggregate supply curve will shift if there is a change in business costs brought about by a change in the price of resources. If wage rates or the cost of raw materials fall then the short-run aggregate supply curve will shift to the right from SRAS to SRAS1 in diagram 3.6. If wage rates rise or the cost of raw materials rises, then the short-run aggregate curve will shift to the left from SRAS to SRAS2 in diagram 3.6. </p><hr class="hidden"><p>Changes in indirect taxation can also cause shifts in the short-run aggregate supply. If a country increases its rate of VAT from 20 per cent to 25 per cent then aggregate supply will fall and the short-run aggregate supply curve will shift to the left.</p></div><div class="pinkBg"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4><strong>Inquiry case example - Oil prices go negative</strong></h4></div></div><img alt="" height="217" src="../../../ib/economics/images/textbook/ad-and-as/oil-price.jpg" style="float: right;" width="389"></div><p>Oil prices have plummeted in recent weeks as a result of falling demand because of the Covid19 crisis and a decision by the world’s biggest suppliers, Russia and Saudi Arabia, to increase output. On one day in April, the price of US crude oil crashed from $18 a barrel to -$38. Oil is currently trading at $30 a barrel down from $70 earlier in the year.</p><hr class="hidden"><p>Falling oil prices can have a significant impact on business costs in terms of energy and transport expenses. With oil prices currently 50 per cent below their level earlier in the year and business costs falling, the short-run aggregate supply curves of economies across the world will be increasing and shifting to the right.</p><p><a href="../../../media/ib/economics/images/textbook/ad-and-as/aggregate-supply/oil-price-negative.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></p><h5><strong>Questions</strong></h5><p><strong>a. Using a diagram explain why there is a positive relationship between short-run aggregate supply and the average price level of the economy. [4]</strong></p><section class="tib-hiddenbox"><p><img alt="" height="256" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/adas-for-sras.jpg" style="float: right;" width="362">As the average price level rises firms will increase output to take advantage of higher profits from a higher price level and a higher price covers the cost of increasing output.</p></section><p><strong>b. Using a diagram explain the impact falling oil prices would have on real GDP and the average price level of an economy that consumes a large amount of oil. [4]</strong></p><section class="tib-hiddenbox"><p><img alt="" height="239" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/shift-in-sras-oil.jpg" style="float: right;" width="363">As the price of oil decreases, it becomes less expensive to businesses that use oil in their production processes such as energy firms and manufacturers that use plastics. This cause the SRAS curve to shift from SRAS to SRAS1 as production costs fall in the economy and this leads to an increase in real GDP and a decrease in the average price level.</p></section><p><strong>Investigation</strong></p><p><strong>Research other factors that might affect short-run aggregate supply in an economy. </strong></p></div><div class="blueBg"><h3><strong>Short-run equilibrium national income</strong></h3><hr class="hidden"><p>The short-run equilibrium national income is the real GDP of a country determined by the interaction of short-run aggregate supply and aggregate demand. When aggregate demand equals short-run aggregate supply the economy achieves the equilibrium national income (real GDP) and the equilibrium average price level.</p><hr class="hidden"><hr class="hidden"><h4><strong>Changes in short-run equilibrium</strong></h4><p>A change in either aggregate demand or supply will cause a change in the equilibrium level of national income (real GDP).</p><h5><strong>Change in aggregate demand<img alt="" height="293" src="../../../ib/economics/images/textbook/ad-and-as/increase-in-ad.jpg" style="float: right;" width="432"></strong></h5><p>For example, a reduction in income tax on households leads to a rise in their disposable income. This leads to an increase in consumption and a rise in aggregate demand. The aggregate demand curve shifts from AD to AD1 in diagram 3.8 leading to a rise in the average price level from P to P1 and an increase in real GDP from Y to Y1.</p><hr class="hidden"><h5><strong>Change in short-run aggregate supply</strong></h5><p>For example, short-run a<strong><img alt="" height="260" src="../../../ib/economics/images/textbook/ad-and-as/fallin-sras.jpg" style="float: left;" width="396"></strong>ggregate supply might fall and shift to the left because of a rise in the minimum wage in an economy which increases business costs. This causes SRAS to shift to SRAS1 in diagram 3.9 and the equilibrium real GDP falls from Y to Y1 and the equilibrium average price level rises from P to P1.</p></div><div class="pinkBg"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4><strong>Inquiry case example - Falling aggregate demand and supply at the same time</strong></h4></div></div><img alt="" height="257" src="../../../ib/economics/images/textbook/ad-and-as/covid-19-adas.jpg" style="float: right;" title="https://www.theguardian.com/business/2020/mar/25/coronavirus-pandemic-has-delivered-the-fastest-deepest-economic-shock-in-history" width="346"></div>In just two weeks in mid-March 2020, the US stock market fell 20 per cent – the steepest decline ever recorded and the US GDP fell by an annualised rate of 6% in the first quarter and is expected to decline by over 20 per cent in the second quarter. Steve Mnuchin, US Treasury Secretary has warned that the US unemployment rate might jump to over 20 per cent. Business and consumer confidence have both plummeted and every component of aggregate demand except government expenditure is in free-fall.<hr class="hidden"><p>There has also been a supply-side shock to economies across the world as governments have enforced ‘lockdowns’ that have led to many businesses significantly reducing their output or some stopping production altogether. There is little doubt that the short-run equilibrium incomes of nearly every economy will contract at the same time leading to a global recession. The question is: how long will it take economies to recover?</p><p><a href="../../../media/ib/economics/images/textbook/ad-and-as/aggregate-supply/falling-ad-and-as.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></p><h5>Questions</h5><p><strong>a. Define the term aggregate demand. [2]</strong></p><section class="tib-hiddenbox"><p>Aggregate demand is total expenditure in an economy at a given price level and at a given point in time.</p></section><p><strong>b. Using a diagram explain the impact falling consumer confidence has on an economy. [4]</strong></p><section class="tib-hiddenbox"><p><img alt="" height="258" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/fall-in-ad.jpg" style="float: right;" width="356">A fall in consumer confidence means household expectations of their future economic prospects declining. This means they are less willing to buy goods and services in the future and consumer expenditure will fall. The fall in consumption spending leads to a fall in aggregate demand and this leads to a fall in real GDP and the average price level.</p></section><p><strong>c. Using a diagram explain the impact a nationwide lock-down would have on aggregate supply. [4]</strong></p><section class="tib-hiddenbox"><p><img alt="" height="236" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/fall-in-sras.jpg" style="float: right;" width="359">A lock-down causes a supply side shock which means firms across the economy cannot produce as much. This shifts the SRAS to shift to SRAS1 and aggregate supply falls. This leads to an increase in the average price level and a decrease in real GDP.</p></section><h5><strong>Investigation</strong></h5><p><strong>Investigate similar historical situations where most countries in the world have experienced a fall in short-run equilibrium income at the same time. </strong></p></div><div class="blueBg"><h3><strong>Monetarist/Neo-Classical Long-run aggregate supply (LRAS)</strong></h3><h4><strong>Definition of the long run</strong></h4><p>The long-run in this model is the time period when the price level in the economy can change and the cost of factors of production can change. This means short-run changes in aggregate demand and supply can lead to changes in the costs of factors of production which cause further adjustments in the average price level and real GDP.</p><h4><strong>Full employment national income</strong></h4><div class="polaroid-left"><img src="../../../ib/economics/images/textbook/ad-and-as/friedman.jpg" style="margin: 8px 0px; width: 260px; height: 204px;" title="https://www.britannica.com/biography/Milton-Friedman"><div class="caption">Milton Friedman - Leading Monetarist</div></div><p>The long-run aggregate supply curve is based on the full employment income of the economy. This is the level of national income where all resources available in the economy are being fully utilised. We normally talk about this in terms of full utilisation of labour and capital. In reality, there is never zero unemployment or full utilisation of productive capacity such as shops, office space and factories. An economy at full employment will have a very low level of unemployment and a low level of under-utilisation of offices, factories and shops.</p><hr class="hidden"><p>The level of unemployment associated with full employment is called the natural rate of unemployment. In diagram 3.10 the full employment level of national income is shown by the vertical long-run aggregate supply curve at YFE.</p><hr class="hidden"><h4><strong>Long-run aggregate supply at full employment</strong></h4><p>The long-run aggregate supply curve is vertical at the full employment level of national income because Monetarist/Neo-classical economists believe the short-run equilibrium level of national income will always adjust towards full employment in the long run. This adjustment process can be looked at from two short-run equilibrium situations.</p><h5><strong>From a deflationary gap</strong></h5><p><img alt="" height="308" src="../../../ib/economics/images/textbook/ad-and-as/deflationary-gap.jpg" style="float: left;" width="434">Diagram 3.10 shows how the economy adjusts back to full employment when there is a decrease in aggregate demand after initially being in short-run equilibrium at full employment:</p><ul><li>Aggregate demand falls in the economy because, for example, there is a decrease in business and consumer confidence which causes consumption and investment to fall.</li><li>As aggregate demand falls the short-run equilibrium level of national income falls from Y to Y1 and the average price level falls from P to P1.<hr class="hidden"></li><li>The economy now has a deflationary gap where short-run equilibrium national income is below the full employment level of national income and this is shown by the distance YFE-Y1.</li><li>Wages, business costs and prices fall in the long run because of the deflationary conditions in the economy. For example, a rise in unemployment means there is a surplus in labour supply and wages fall.</li><li>The fall in wages, costs and prices cause the short-run aggregate curve in the economy to increase and shift to the right from SRAS to SRAS1, causing the short-run equilibrium income to settle back at full the full employment income at YFE at the price level P2.</li></ul><h5><strong>From an inflationary gap</strong></h5><div><img alt="" height="304" src="../../../ib/economics/images/textbook/ad-and-as/inflationary-gap.jpg" style="float: right;" width="458">Diagram 3.11 shows how the economy adjusts back to full employment when there is an increase in aggregate demand in the economy when it has started at full employment:</div><ul><li>Aggregate demand rises in the economy because of an increase in consumption and investment as a result of, for example, a cut in central bank interest rates</li><li>As aggregate demand rises the short-run equilibrium level of national income rises from Y to Y1 and the average price level rises from P to P1</li></ul><hr class="hidden"><ul><li>The economy now has an inflationary gap where short-run equilibrium national income is above the full employment level of national income. This means unemployment has fallen below its natural rate which could be from a rate of 4 per cent to a rate of 3 per cent</li><li>Wages, business costs and prices rise in the long run because of inflationary conditions in the economy. Low unemployment leads to a shortage of labour which drives up wages</li><li>The rise in wages, business costs and prices cause the short-run aggregate curve in the economy to decrease and shift to the left from SRAS to SRAS1, causing the short-run equilibrium income to settle back at full the full employment income YFE at price level P2.</li></ul></div><div class="pinkBg"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4><strong>Inquiry case example - Falling wages after the financial crisis</strong></h4></div></div></div><p><img alt="" height="162" src="../../../ib/economics/images/textbook/ad-and-as/honda-pay-cut.png" style="float: right;" title="https://www.mirror.co.uk/money/breaking-honda-cut-temporary-jobs-13964874" width="383">The financial crisis of 2008 and subsequent recession led to an unprecedented fall in real wages in the UK economy. In previous recessions, the growth in median real wages tended to slow but not actually fall. This was not the case post-2008 when workers at all salary levels saw wages fall. Many businesses tried to keep staff rather than make them redundant, but this meant offering lower wages.</p><hr class="hidden"><p>Some workers were reduced to part-time status had their salaries cut in response to this. Wages fell on average by 2% a year between 2008 and 2014. The under 25s saw the biggest reduction with falls of nearly 15% over the 6 year period. </p><h5><strong>Question</strong></h5><p><strong>Explain how an economy moves back to full employment in the long run from a deflationary gap. [10]</strong></p><section class="tib-hiddenbox"><p>Answers might include:<img alt="" height="253" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/deflationary-gap.jpg" style="float: right;" width="359"></p><ul><li>Definitions of full employment, long run and deflationary gap.</li><li>A diagram to show an economy moving back to full employment from a deflationary gap.</li><li>An explanation that as AD falls from AD to AD1 in the diagram there will be a deflationary gap as equilibrium income is below full employment equilibrium. This leads to a fall in business costs as wages and prices fall, causing SRAS to shift to SRAS1 and output moves back to full employment.</li></ul></section><h5><strong>Investigation</strong></h5><p><strong>Research the current recession conditions caused by the pandemic to see whether wages and prices have fallen. </strong></p></div><div class="blueBg"><h4><strong>Movem</strong><strong>ents of the long-run aggregate supply curve </strong></h4><p>The long-run aggr<img alt="" height="315" src="../../../ib/economics/images/textbook/ad-and-as/shifts-of-lras.jpg" style="float: left;" width="429">egate supply curve will shift if there is a change in the potential output of the economy. In most cases, this is a shift outwards as the potential output of the economy increases. Diagram 3.12 shows a shift in the LRAS curve to the right in response to an improvement in the productive capacity of the economy. As the LRAS shifts to the right, the real GDP of the economy rises from Y to Y1 and the average price level falls from P to P1.</p><hr class="hidden"><p>Long-run aggregate supply can shift outwards if there is an:</p><ul><li>Increase in the number of workers in the labour force because of migration.</li><li>Improvement in the skill level of the labour force because education and training increase labour productivity.</li><li>Increase in capital available in the economy because of new investment.</li><li>Improvement in production technology such as the use of artificial intelligence and robot technology on production lines.</li><li>Increase in the availability of a new natural resource such as the discovery of oil and gas.</li><li>Improvement in the output from existing natural resources resulting from technological improvement such as the use of genetically modified crops.<hr class="hidden"></li></ul><p>The long-run aggregate supply curve can fall if the potential output of the economy goes down. This could have occurred if there was a war or a natural disaster where capital is destroyed.</p><h3><strong>Keynesian aggre</strong><strong>gate supply curve</strong></h3><p>The Keynesian a<img alt="" height="282" src="../../../ib/economics/images/textbook/ad-and-as/keynesianas.jpg" style="float: left;" width="453">ggregate supply curve was developed by the economist, John Maynard Keynes. It is different from the Neo-classical/Monetarist view which looked at aggregate supply in separate time frames. In the Keynesian theory, there is a single aggregate supply curve and it does not distinguish between time frames. Some economists refer to the Keynesian aggregate supply curve as a long-run aggregate supply curve.</p><hr class="hidden"><h4><strong>Phases of the Keynesian aggregate supply curve</strong></h4><p>The Keynesian aggregate supply curve shown in diagram 3.13 can be broken down into 3 phases:</p><hr class="hidden"><h5><strong>Phase 1</strong></h5><p>When output is below Y in diagram 3.13, the economy has spare capacity and output can increase and decrease without any change in the price level. Below Y the economy has a deflationary gap and is operating below the full employment level of national income. In this situation the economy would have high unemployment and capital would be under-utilised. These macroeconomic conditions are typical of a recession. When aggregate demand changes on this section of the aggregate supply curve real GDP will change but the average price level will stay the same.</p><h5><strong>Phase 2</strong></h5><p>From Y to Y1 in diagram 3.13, the economy is approaching full employment and some industries are nearing full capacity. In this section, any change in aggregate demand will lead to a change in output and the average price level. If aggregate demand rises, real GDP will increase and so will the average price level. Rising demand in the economy on this section of the Keynesian aggregate supply curve will mean some industries nearing full capacity will experience price increases and this will increase the average price level in the whole economy.</p><h5><strong>Phase 3</strong></h5><p>When the economy is at Y2 it has reached full employment. There is no spare productive capacity and the economy has very low levels of unemployment. The economic conditions in this phase of the aggregate supply curve are typical of an inflationary gap. When aggregate demand changes real output does not change but the price level does. If aggregate demand increases at Y2 there will be a significant increase in the average price level and a rise in inflation.</p><h4><strong>Difference between the Keynesian and Neo-Classical/Monetarist view<img alt="" src="../../../ib/economics/images/textbook/ad-and-as/keynes-hayek.jpg" style="width: 400px; height: 236px; float: right;"></strong></h4><p>One of the key issues that arise from the Keynesian aggregate supply curve is that the economy cannot self-correct when there is a deflationary gap. This is the key difference between Keynesian and the Neo-classical/Monetarist aggregate supply model. Keynes argued that wages and costs do not fall when there is a deflationary gap because of minimum wage legislation, trade union activity and firms would prefer to cut jobs rather than wages in a recession.</p><hr class="hidden"><p>Keynesian economists say wages are ‘sticky downwards’ because these pressures stop wages from falling when aggregate demand decreases in a deflationary gap situation. This means the economy cannot self-correct as it does in the Neo-classical/Monetarist model where wages and costs fall causing the short-run aggregate supply to increase and the equilibrium income to return to full employment.</p><h4><strong>Implication for policymaking</strong></h4><p>Because the economy does not self-correct in the Keynesian model, Keynesian economists argue that the government has to intervene in recessions to bring the economy back to full employment by using expansionary fiscal policy. For example, if an economy goes into recession and gets into a negative feedback cycle where rising unemployment leads to falling aggregate demand then this might cause the economy to get stuck at a level of real income significantly below full employment. In this situation, there is a strong case for government intervention using expansionary fiscal and monetary policy to bring the economy back to full employment. It can also be argued that the Monetarist view that the economy self-corrects might take such a long time (a period of years) that it would be very damaging to the economy during the period when it is correcting. Once again, there is a case for expansionary fiscal and monetary policy.<strong> </strong></p><h4><strong> </strong></h4></div><div class="pinkBg"><div class="panel" style="box-shadow: rgba(0, 0, 19, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><div><p>Inquiry case example - How can artificial intelligence shift aggregate supply?</p></div></div><div class="panel-footer" style="background-color: rgba(39, 45, 105, 0.1);"><div><p>text</p></div></div></div><p><img alt="" height="188" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/law.jpg" style="float: left;" width="227">The increasing use of artificial intelligence (AI) is creating more and more opportunities for businesses to become more efficient. It is quite easy to see how AI can facilitate greater efficiency in manufacturing where AI can be used in quality control, product design and machine optimisation.</p><hr class="hidden"><p>But what about in a traditional service sector business like the law? There are going to be opportunities for legal firms to improve their activities by using AI. When a law firm is advising a client about a case they will consider issues such as the length of time a case might take; the strength of their case; the strength of the opposition's case; the legal precedents in the case and if the case goes to court the chances of winning. A top law firm would typically employ a team of paralegals who could examine all these issues and give the law firm the information needed to put in front of their clients. This work could now all be done using AI in a fraction of the time and probably with greater accuracy. </p><h5><a href="../../../media/ib/economics/images/textbook/ad-and-as/aggregate-supply/innovation.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></h5><h5>Q<strong>uestions</strong></h5><p><strong>Using a real-world example, evaluate the view that an improvement in technology will always lead to economic growth. [15]</strong></p><section class="tib-hiddenbox"><p>Answers might include:</p><ul><li>Definition of economic growth.<img alt="" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/shift-in-lras.jpg" style="float: right; width: 350px; height: 257px;"></li><li>A diagram to show how an improvement in technology shifts LRAS to LRAS1 which leads to a rise in the real GDP.</li><li>An explanation that an improvement in technology increases potential output as businesses in the economy can produce goods and services more efficiently. This causes aggregate supply to increase in the long run.<hr class="hidden"></li><li>An example to show how improvements in technology can lead to greater efficiency amongst legal firms who can perform their services with fewer workers and to a higher standard.</li><li>Evaluation could include discussion of where improvements in technology might not lead to economic growth. If aggregate demand is not increasing or even falling then the supply-side improvements brought by improvements in technology might not lead to growth. This is particularly the case with the Keynesian aggregate supply curve. Improvements in technology might also lead to a rise in structural unemployment which could cause aggregate demand to fall and suppress economic growth.</li></ul></section><h5><strong>Investigation</strong></h5><p><strong>Research into an industry that has benefited from the development of artificial development. </strong></p></div><div class="panel" style="box-shadow: rgba(38, 0, 0, 0.3) 0px 10px 30px -15px; border-color: rgb(124, 7, 21);"><div class="panel-heading" style="background-color: rgb(124, 7, 21);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><p>Thinking about a key concept - Efficiency</p></div></div><div class="panel-body" style="background-color: inherit;"><div><p>The concept of an economy's aggregate supply is one way of looking at economic efficiency from a macroeconomic perspective. The long-run aggregate supply curve represents the level of national income where all the resources of the economy are being used efficiently. This means the land, labour, capital and enterprise of the economy are achieving the highest possible output. This can be shown by the production possibility curve when a country produces on the PPC curve. In reality, there is always going to be some inefficiency in an economy - there will always be some unemployment and some unused capital (empty shops and factories). This means economies do not produce on the LRAS curve, they are always producing somewhere below the full employment national income.</p><p><strong>Choose an economy and think about how close it is to producing on the LRAS curve. From a macroeconomic perspective, think about how efficient your chosen economy is at a macroeconomic level.</strong></p></div></div><div class="panel-footer" style="background-color: rgba(124, 7, 21, 0.1);"><div><p>text</p></div></div></div><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><p>Now test yourself</p></div></div></div><div class="tib-quiz" data-quiz-id="1123" data-structure="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" data-score-answers="6d4a526a457a48584f763758344a7649472f76324c53614b78524c393439595570496d5a5971374b38686f3d"><div class="exercise"><div class="q-question"><p>Which of the following is not true about short run aggregate supply?<br> </p></div><div class="q-answer"><p><label class="radio" data-answer="258a27fd3789be85dcc38c708936ea4c"><input type="radio"><span> SRAS is positively related to the average price level</span></label></p><p><label class="radio" data-answer="b6391756d3c28aadbd549afb1272f853"><input type="radio"><span> SRAS will decrease and shift to the left if the rate of VAT is reduced</span></label></p><p><label class="radio" data-answer="863d23ee7fbe3ff5abba64e7f9ade489"><input type="radio"><span> SRAS will increase and shift to the right if business costs fall</span></label></p><p><label class="radio" data-answer="163cfe8376c3bb17af75eabc861378cc"><input type="radio"><span> SRAS is made up the output of all producers in the economy</span></label></p></div><div class="q-explanation"><p>If VAT is reduced business costs will fall and the SRAS curve will increase and shift to the right.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following is the best explanation of the increase in equilibrium national income from Y to Y1 in the diagram?</p><p> </p><p><img alt="" height="213" src="../../../ib/economics/images/textbook/mc-questions/falling-ad.png" width="302"></p></div><div class="q-answer"><p><label class="radio" data-answer="89c59f4572fed2154dbfdf28fcf2ada1"><input type="radio"><span> Fall in business costs</span></label></p><p><label class="radio" data-answer="38f5c06f7a8c3c9af41df105c2e27b01"><input type="radio"><span> Increase in interest rates</span></label></p><p><label class="radio" data-answer="fe5d13efc4e8a4ef32bfa3ea7e01a3f6"><input type="radio"><span> Household indebtedness increases</span></label></p><p><label class="radio" data-answer="9777c5cdc64dfc3a621a14c3f4856b7f"><input type="radio"><span> Rise in consumer confidence</span></label></p></div><div class="q-explanation"><p>A rise in consumer confidence would increase consumption in the economy and cause AD to shift to AD1.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following is least likely to cause SRAS to shift to SRAS1?</p><p><img alt="" height="200" src="../../../ib/economics/images/textbook/mc-questions/falling-sras.png" width="297"></p></div><div class="q-answer"><p><label class="radio" data-answer="7b4d3dc7bbcea82296cc9304c8836dd3"><input type="radio"><span> Rise in the cost of raw materials</span></label></p><p><label class="radio" data-answer="8494f9c751c16e7af299c42c3654f6fb"><input type="radio"><span> Rise in indirect taxes</span></label></p><p><label class="radio" data-answer="0a45bc4b82af714ab22262774c34264f"><input type="radio"><span> Rise in the minimum wage</span></label></p><p><label class="radio" data-answer="4b175e1f182bf87b19c898f94932cb68"><input type="radio"><span> Rise in business efficiency</span></label></p></div><div class="q-explanation"><p>A rise in business efficiency would lead to a fall in business costs and the SRAS would shift to the right.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following is true about the long run aggregate supply curve (LRAS)?</p></div><div class="q-answer"><p><label class="radio" data-answer="43e9184defa2455c462f538050fe97c3"><input type="radio"><span> An improvement in technology will cause the LRAS to increase and shift to the right</span></label></p><p><label class="radio" data-answer="04637939272ceff352f65574e4b1b2c6"><input type="radio"><span> When the economy is in short run equilibrium on the LRAS curve unemployment is zero</span></label></p><p><label class="radio" data-answer="35f937b016548ed26c0b329eae7cd06e"><input type="radio"><span> There is a positive relationship between the LRAS curve and the average price level</span></label></p><p><label class="radio" data-answer="f660f53d0c5268b2d737ae5d26689faa"><input type="radio"><span> The LRAS will decrease and shift to the left if business costs fall</span></label></p></div><div class="q-explanation"><p>As technology improves in an economy more can be produced from available resources and the LRAS increases.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following is not true about the diagram that shows the LRAS of country A?</p><p> </p><p><img alt="" height="260" src="../../../ib/economics/images/textbook/mc-questions/lras.png" width="362"></p></div><div class="q-answer"><p><label class="radio" data-answer="e78832642ad9658716c781a5c80712c4"><input type="radio"><span> The economy is in short run equilibrium output Y1</span></label></p><p><label class="radio" data-answer="8e8d2dddcdddc6f5480bd212084db170"><input type="radio"><span> The distance YFE to Y1 is a deflationary gap</span></label></p><p><label class="radio" data-answer="fe0ae74818ad6be210db84b2ac960244"><input type="radio"><span>Total expenditure in the economy has fallen</span></label></p><p><label class="radio" data-answer="98072ff4ba10a3d19ca54b62a152799a"><input type="radio"><span> The economy will be operating on the PPC</span></label></p></div><div class="q-explanation"><p>When the output falls from YFE to Y1 in the diagram country A will be operating inside the PPC.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Why does aggregate supply on the Keynesian aggregate supply curve become perfectly elastic when the economy is operating significantly below full employment?</p></div><div class="q-answer"><p><label class="radio" data-answer="dffee88a732ae1cd343fb211e917b9f3"><input type="radio"><span> Firms would rather reduce wages and not make workers redundant when aggregate demand falls</span></label></p><p><label class="radio" data-answer="4ae3aeda907e28b55612327d52ad3ddd"><input type="radio"><span> Firms accept lower profits below full employment</span></label></p><p><label class="radio" data-answer="21809c02296daf4791ccb58b313b7046"><input type="radio"><span> Wages are sticky downwards and do not fall when the economy is below full employment</span></label></p><p><label class="radio" data-answer="ccc014367570631f67c1a2a9376a7011"><input type="radio"><span> Raw material costs rise when the economy is below full employment</span></label></p></div><div class="q-explanation"><p>Wages are sticky downwards in the Keynesian model of aggregate supply.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following is least likely to be true when aggregate demand increases when the Keynesian aggregate supply curve is used?</p></div><div class="q-answer"><p><label class="radio" data-answer="89bc7560f0c6d303022ae95240738cc2"><input type="radio"><span> The average price level will always increase</span></label></p><p><label class="radio" data-answer="882e9b4ccc049d8131751798a60c2b85"><input type="radio"><span> If output is below full employment the average price level may stay the same</span></label></p><p><label class="radio" data-answer="6442106b1a075afea490bcec68adecaa"><input type="radio"><span> At full employment the real output will not change</span></label></p><p><label class="radio" data-answer="a6be13206ea6db938be73d41e5e75017"><input type="radio"><span> When output is near full employment the average price level and real GDP will increase</span></label></p></div><div class="q-explanation"><p>When output is below full employment and there is a deflationary gap an increase in AD will not increase the average price level.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>The position of the long run aggregate supply curve for Country X depends upon: </p></div><div class="q-answer"><p><label class="radio" data-answer="acbd7c094a86da87b93732eeef98138a"><input type="radio"><span> The position of Country X in the business cycle</span></label></p><p><label class="radio" data-answer="7e0150ad75b45e9ef479b60b95645b4f"><input type="radio"><span> The amount and quality of the labour and the capital in Country X</span></label></p><p><label class="radio" data-answer="33a3e988c280bd7f30502c7701e681f7"><input type="radio"><span> The level of unemployment in Country X</span></label></p><p><label class="radio" data-answer="1a94ea0d2f29b393c056ee1a48dde1c4"><input type="radio"><span> The equilibrium level of national income in Country X</span></label></p></div><div class="q-explanation"><p>The amount and quality of capital and labour determines the potential output of the economy.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following is least likely to be true on this Monetarist LRAS diagram?</p><p><img alt="" height="228" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/monetarists-lras.jpg" style="float: left;" width="322"></p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p></div><div class="q-answer"><p><label class="radio" data-answer="857ab0370300d9c875e3c826ba549ed4"><input type="radio"><span> The distance Y1 to YFE is a deflationary gap</span></label></p><p><label class="radio" data-answer="ec99e0c769baff61f821745517a7cfb8"><input type="radio"><span> SRAS has shifted to SRAS1 because of a fall of wages and prices</span></label></p><p><label class="radio" data-answer="3ce43a4a77d8c170eb27a710db14a01b"><input type="radio"><span> Increased government spending is always needed to increase output from Y1 to YFE</span></label></p><p><label class="radio" data-answer="8e127f9551c59a4c32e98dad710123b3"><input type="radio"><span> The economy is in the recession phase of the business cycle at Y1</span></label></p><p> </p></div><div class="q-explanation"><p>The economy will return to full employment incomes as wages and prices fall.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following is most likely to be true if there is a increase in the potential output of an economy?</p></div><div class="q-answer"><p><label class="radio" data-answer="3ebd0d00838e04a0597e36b8a52ec257"><input type="radio"><span> Rate of inflation will increase</span></label></p><p><label class="radio" data-answer="8ff2919e1d12bbe969f9e8737ac65ec0"><input type="radio"><span> Rate of unemployment will increase</span></label></p><p><label class="radio" data-answer="cbf86971001b15d42c73367c3b922ebd"><input type="radio"><span> Long run aggregate supply will increase</span></label></p><p><label class="radio" data-answer="f48bf9dfae888d187e13c74aefc6e49a"><input type="radio"><span> Aggregate demand will decrease</span></label></p></div><div class="q-explanation"><p>An increase in potential output increases the LRAS.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="totals"><span class="score">Total Score: </span><button class="btn btn-success check-total"><i class="fa fa-check-square-o"></i> Check</button></div></div><hr><script>document.querySelectorAll('.tib-teacher-only').forEach(e => e.remove());</script>
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