Aggregate supply (as), Macroeconomics

Aggregate Supply (AS)

We now shift our attention to the supply side of the macroeconomy. Aggregate supply explains the production and pricing side of the economy and the behavior of the businesses as a whole. This is something contrary to the Keynesian model (which is based on demand side of macroeconomy) where the price level was assumed to be constant and output was demand determined. This implies that aggregate supply is perfectly price elastic up to the full employment level of output. However, to have a more realistic bent of analysis, we relax the assumption of constant price level and allow aggregate supply to vary with changes in the price level. Moreover the behavior of the aggregate supply is not as straightforward as the behavior of aggregate demand because we must distinguish between aggregate supply in the short run and aggregate supply in the long run. In the short run, the interaction between aggregate demand and aggregate supply determines the level of the output, employment, and capacity utilization as well as the price level (the source of inflation). In the long run, a decade or more say, aggregate supply is considered as the major factor behind economic development and well-being of a nation. Let us begin with aggregate supply in the short run.

Posted Date: 9/18/2012 5:22:24 AM | Location : United States







Related Discussions:- Aggregate supply (as), Assignment Help, Ask Question on Aggregate supply (as), Get Answer, Expert's Help, Aggregate supply (as) Discussions

Write discussion on Aggregate supply (as)
Your posts are moderated
Related Questions
explain the effects of various injections and withdrawals and show the equilibrium in the circular flow

different determinants of propensity to consume

Statics and Dynamics   Economic models deal with stock and flow variables. These variables can be in one of the two states - equilibrium or disequilibrium - at a particular poin

A monopoly has a total cost function of C(Q) = 8Q and faces a market demand Q = 100 ? 2p, (a) calculate the deadweight loss; (b) The firm now spent an amount equal to half of

Evaluating Legal Prices: Collect information regarding the minimum wage. State the procedure of this legal price, assess its impact on the market for labor, and evaluate the extent

Question 1 Discuss the relationship between microeconomics and macroeconomics Question 2 What do you understand production method? What precaution should be taken while

Suppose that Michael and Dwight each have a $60 weekly entertainment budget. They pay the same prices for two goods, "an evening reading books" (an ERB) and "an evening of beer and

Use the following data for a firm's output at various levels of employment (L) to calculate: a) its marginal physical product of labor (MPPL) schedule; (b) its (MPPL/MRCL) schedule

explain the neo-classical theory of trade and show the difference between this and the classical approach, as wellas the similarities

The economy of Mainland has the following aggregate and aggregate supply schedules:                               Real GDP Demanded                         Real GDP Supplie