Aggregate Supply

The total supply of goods and services

produced by a national economy during a
specific time period.
The total amount of goods and services in the
economy
Short run Aggregate Supply curve
Shifts in the AS curve
• Changes in the size and quality of the labour
force
• Changes in the size and quality of capital stock
through investment
• Technological progress
• Changes in factor productivity both labour and
capital
• Unit wage costs
• Producer taxes and subsidies
• Inflation expectations
Macroeconomic AS

• In the long run the AS curve is assumed

to be vertical and shows total planned
output when everything is held constant.
• In the short term the AS curve is assumed
to be upward sloping and shows planned
output when both prices and labour rates
can change. Linked to the Production
possibility curve.
Short run aggregate supply curve
The slope of the short run AS curve
depends on the degree of slack in
the economy
• Negative output gap
• Positive output gap
• Diminishing returns
• Full capacity output at LRAS
Shifts in the short run AS curve
Shifts in the short run AS curve

• Changes in unit labour costs

• Commodity prices
• Government taxation and subsidy
Long run aggregate supply function
Y*t=f(Lt,Kt,Mt)
• Y*= aggregate measure of potential
output
• T= time period under consideration
• L=quantity and quality of labour available
• K= available capital stock
• M= availability of natural resources
Causes of shifts in LRAS are any
changes which effect the natural
rate of growth of output
Increasing long run aggregate
supply
• Expanding the labour supply
• Increases in productivity of labour or capital
• Increase in occupational or geographical mobility
of labour
• Expansion of capital stock
• Increased business efficiency
• Stimulate a faster pace of invention and
innovation.