AQA A-Level Economics (7136) · The National & International Economy
Specification points
- Short-run and long-run aggregate supply (SRAS, LRAS).
- The factors that shift SRAS and LRAS.
- Keynesian and classical views of LRAS; macroeconomic equilibrium.
Aggregate supply
- SRAS slopes upwards: with input costs fixed in the short run, a higher price level raises output.
- LRAS shows the economy's productive capacity.
Shifting AS
- SRAS shifts with input costs — wages, raw materials, energy, exchange rates and indirect taxes.
- LRAS shifts with capacity — the quantity and quality of factors, investment, technology and productivity.
SRAS shifts with costs; LRAS shifts with productive capacity.
Classical and Keynesian LRAS
- Classical — LRAS is vertical at full capacity; only supply-side factors raise long-run output.
- Keynesian — LRAS has a horizontal section (spare capacity), an upward section and a vertical section, so demand can raise real output when there is spare capacity.
Key definitions
| Term | Definition |
|---|---|
| SRAS | Total output at each price level with input prices fixed. |
| LRAS | The economy's full productive capacity. |
| Macroeconomic equilibrium | Where AD equals AS, setting the price level and real output. |
Macroeconomic equilibrium
Equilibrium is where AD = AS. Shifts in AD or AS change the price level and real output. The Keynesian-classical debate matters: with spare capacity, a demand boost raises output with little inflation; near capacity, it is mostly inflationary.
Worked example
A rise in world oil prices shifts SRAS left, raising the price level and cutting output (cost-push). Meanwhile sustained investment in skills and technology shifts LRAS right, raising capacity and enabling non-inflationary growth — the supply-side goal.
Common exam mistakes
- Confusing SRAS shifts (costs) with LRAS shifts (capacity).
- Mixing up the classical and Keynesian LRAS.
Exam technique
State whether SRAS or LRAS shifts, move the correct curve, and read off the price level and output. Use the LRAS debate for evaluation.
Quick revision
- SRAS: costs; LRAS: capacity.
- Classical LRAS vertical; Keynesian three-section.
- Equilibrium: AD = AS.