Unit 3 AS

Aggregate Supply

 What is Aggregate Supply?
 Aggregate Supply is the amount of goods and services (real GDP) that firms will produce in an economy at different price levels. The supply for everything by all firms. 


Aggregate Supply differentiates between short run and long-run and has two different curves. 

Short-run Aggregate Supply •Wages and Resource Prices will not increase as price levels increase. 













Long-run Aggregate Supply •Wages and Resource Prices will increase as price levels increase. 16 Short-Run Aggregate Supply In the Short Run, wages and resource prices will NOT increase as price levels increase.



                  Shifters Aggregate Supply 
                                 I. R. A. P.


1. Change in Inflationary Expectations If an increase in AD leads people to expect higher prices in the future. This increases labor and resource costs and decreases AS. (If people expect lower prices…)
2. Change in Resource Prices Prices of Domestic and Imported Resources (Increase in price of Canadian lumber…) (Decrease in price of Chinese steel…) Supply Shocks (Negative Supply shock…) (Positive Supply shock…) 2
3 Shifters of Aggregate Supply 3. Change in Actions of the Government (NOT Government Spending) Taxes on Producers (Lower corporate taxes…) Subsides for Domestic Producers (Lower subsidies for domestic farmers…) Government Regulations (EPA inspections required to operate a farm…)
4. Change in Productivity Technology (Computer virus that destroy half the computers…)