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5 Cards in this Set

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Aggregate supply curve

The relationship between the average level of prices in the economy and the level of total output.

Full capacity

The level of output where no extra production can take place in the long run with existing resources. The full capacity level of output for an economy is shown by the classical long run aggregate supply curve or the vertical part of a Keynesian aggregate supply curve.

Long-run aggregate supply curve

The aggregate supply curve which assumes that wage rates are variable, both upward and downwards. Classical or supply side economists say that wage rates are flexible. Keynesian economists assume that wage rates are "sticky downwards" and hence the economy may operate at less than full employment even in the long run.

Short-run aggregate supply curve

The upward sloping aggregate supply curve which assumes that money wage rates are fixed.

Supply-side shocks

Factors such as changes in wage rates or commodity prices which cause the short run aggregate supply curve to shift.