Unit 3.2·Macroeconomics

Determinants and Shifts of SRAS

Variations in Economic Activity: Aggregate Demand and Aggregate Supply

AO2·AO4·Diagram required

Syllabus requirement

Shifts in SRAS are caused by changes in costs of production, such as wages, taxes, and import prices.

Assessment objectives

AO2 Application and AnalysisAO4 Use of Appropriate Skills

Required diagram: Diagram showing SRAS shifts due to changes in production costs (e.g., a leftward shift from higher oil prices).

Summary

Short-run aggregate supply (SRAS) shows the total planned output firms are willing and able to produce at different general price levels in the short run, when some inputs are fixed. SRAS shifts when non-price determinants of production costs change (wages, input prices, exchange rates, interest rates, indirect taxes), and a leftward shift raises the price level and lowers real output while a rightward shift has the opposite effect. Understanding SRAS shifts is essential for explaining how supply-side cost changes affect inflation and real GDP in the short run.