Aggregate supply

Aggregate supply

total output off goods and services that firms in an economy are willing and able to supply at a given price level

In the short run

a period of time where at east one factor of production is fixed

In the long run

all the factors of production are variable

Extension in aggregate supply

When the price level goes up aggregate supply increases

Extension in aggregate supply diagram:

done

Contraction is aggregate supply:

When the price level decreases real GDP also decreases

Contraction is aggregate supply diagram:

done

Keynesian LRAS curve draw:

done

3 main features of the Keynesian LRAS curve

Spare capacity , bottle neck and full employment

Draw the neo-classical LRAS curve

done

What do neo-classical economist believe about Long run aggregate supplly

In the long run the economy is always at full employment as it uses up all its resources

When costs change there will be a shift in

the SRAS curve

When quantity of factors of production change there will be a shift in

the LRAS curve

An increase in commodity prices will cause a shift in

the SRAS curve to the left

A decrease in commodity prices will cause a shift in

SRAS curve to the right

A large discovery of a natural resource will cause a shift in

the neoclassical and Keynesian LRAS curve to the right

Increased investment will cause a shift in

the LRAS curve to the right