More on SRAS

Aggregate supply is determined by the supply side performance of the economy. It reflects the productive capacity of the economy and the costs of production in each sector.

Shifts in the SRAS curve can be caused by the following factors:

• changes in size & quality of the labour force available for production

• changes in size & quality of capital stock through investment

• technological progress and the impact of innovation

• changes in factor productivity of both labour and capital

• changes in unit wage costs (wage costs per unit of output)

• changes in producer taxes and subsidies

• changes in inflation expectations - a rise in inflation expectations is likely to boost wage levels and cause AS to shift inwards