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
Q. Explain about Quantity theory of money? One of the main elements of the classical model is quantity theory of money. Quantity theory of money connects three important variab

Q. Explain money market and price changes? The money market and price changes The money demand curve will shift to the right (left) in themoney market diagr

This problem is based on the Ricardian Model. Assume that 2 countries, Stormlands and Reach, use White Walkers' labor to produce 2 goods, lumber and wheat.

Can democracy survive if a majority of the citizen pays little or nothing in taxes while benefiting directly from a higher level of government spending? Why or why not?

Q. Describe the macroeconomic variables? In this section we have summarizes all the macroeconomic variables. The first column denotes the symbol we use for variable whereas col

Axiom of completeness: Consumer's choice is complete. Implication: Since consumer is rational, she must have a unique preference relation. That means the consumer choice is ei

If a firm wants to sell goods more often, would they prefer to produce a high quality good that will not wear out or one that will wear out faster. For example, what is the 'life e

Let us now see a bit more closely how monetary policy works. See Figure Figure  The initial equilibrium at point E is on the initial LM schedule that corresponds to a

A 90 o perfectly conducting corner cube reflector has a shortdipole (oriented in the z-direction) placed at a distance d from the vertex. The antenna is fed by current Io. a) F

This is an examination of costs and revenue to explain whether a venture will make a profit. This is significant information in deciding on whether to make an investment. The lengt