The importance of the institutional structure of the economy in determining aggregate supply, such as the role of the banking system in providing business investment funds
An economy's institutions — the rules, systems, and organisations that govern how it works — shape how much output the economy can produce. A well-functioning banking system, for example, gives businesses access to funds they need to invest and expand.
Real World
When Lehman Brothers collapsed in 2008, UK banks sharply restricted business lending — credit dried up, investment fell, and the LRAS shifted left as firms could not finance expansion or productivity improvements.
Exam Focus
For 'explain' or 'analyse' questions, always trace the mechanism: institution → investment → productive capacity → LRAS shift.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
How well did you know this?