How fiscal policy can be used to influence aggregate supply
Governments can use spending and tax decisions to expand the economy's productive capacity. This shifts aggregate supply — the total output the economy can produce — to the right.
Real World
The UK government's £36 billion investment in the Hinkley Point C nuclear plant lowers long-run energy costs for firms, shifting LRAS rightward by expanding productive capacity.
Exam Focus
Distinguish SRAS from LRAS shifts — infrastructure and education affect LRAS; a temporary wage subsidy affects SRAS only.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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