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Aggregate Supply

Aggregate Supply. Short-Run Aggregate Supply and Long-Run Aggregate Supply. Short-Run Aggregate Supply Curve: Slope. SRAS 1. Aggregate Price Level. 14.0. A rise in the aggregate price level…. …causes aggregate output supplied to rise in the short run. Why?. 6 .0.

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Aggregate Supply

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  1. Aggregate Supply Short-Run Aggregate Supply and Long-Run Aggregate Supply

  2. Short-Run Aggregate Supply Curve: Slope SRAS1 Aggregate Price Level 14.0 A rise in the aggregate price level… …causes aggregate output supplied to rise in the short run. Why? 6.0 The short-run aggregate supply curve, SRAS, is upward sloping. Why? (Think of wages). Y2 Y1 Real GDP Output

  3. Short-Run Aggregate Supply Curve: Shifts in the Curve SRAS2 SRAS1 SRAS3 Aggregate Price Level Left shift of the aggregate supply curve = decrease in supply Right shift of the aggregate supply curve = increase in supply The short-run aggregate supply curve is upward sloping. • What causes shifts in the short-run aggregate supply curve? • How do those causes affect the curve (left or right shift)? Real GDP

  4. Long-Run Aggregate Supply Curve: Slope LRAS Aggregate Price Level 14.0 …leaves the quantity of aggregate output supplied unchanged in the long run. Why? A rise in the aggregate price level… 6.0 The long-run aggregate supply curve, LRAS, is vertical. Why? (Think about wages again, over time). YP Real GDP Potential output

  5. Leftward Shift of Short-Run Aggregate Supply Curve SRAS1 LRAS SRAS2 Aggregate Price Level …but over time, low unemployment from this increased production drives up nominal wages, which shifts SRAS to the left. P1 A1 Initially, low wages have suppliers ramping up production above potential output… Suppose that aggregate prices are relatively low. • In the long run, the economy’s actual aggregate output matches potential aggregate output. YP Y1 Real GDP

  6. Rightward Shift of Short-Run Aggregate Supply Curve SRAS2 SRAS1 LRAS …but over time, high unemployment from this decreased production drives down nominal wages, which shifts SRAS to the right. Aggregate Price Level Suppose that aggregate prices are relatively high. A1 P1 Initially, high wages have suppliers keeping production below potential output… • In the long run, the economy’s actual aggregate output matches potential aggregate output. YP Y1 Real GDP

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