Download Aggregate Supply

AP Economics
Mr. Bernstein
Module 18:
Aggregate Supply: Introduction and
Determinants
March 10, 2015
AP Economics
Mr. Bernstein
Aggregate Supply: Intro and Determinants
• Objectives - Understand each of the following:
• How the aggregate supply curve illustrates the
relationship between the aggregate price level and the
quantity of aggregate output supplied in the economy
• What factors can shift the aggregate supply curve
• Why the aggregate supply curve is different in the short
run from in the long run
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AP Economics
Mr. Bernstein
Aggregate Supply
• The relationship between aggregate price level
demand and the aggregate quantity of output
supplied
• In the short run,
SRAS is upward sloping
• In the long run,
LRAS is vertical at
potential GDP
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AP Economics
Mr. Bernstein
The Short-Run Aggregate Supply Curve
• If the price of a unit of output is rising faster than
production costs, supply will rise
• Why? Some input
prices are sticky,
particularly wages,
so as prices rise
profits go up
in the short run
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AP Economics
Mr. Bernstein
AS Curve Shifters
• D Commodity Prices
• D Nominal Wages
• D Productivity
(Increase in AS is
a shift “right” and
decrease in AS is
a shift “left”)
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AP Economics
Mr. Bernstein
The Long-Run Aggregate Supply Curve
• What if wages were flexible and followed prices?
• Prices would rise, so would wages, and supply
would not move
• In Long Run, wages
are flexible, so
LRAS is vertical
• At Potential GDP YP
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AP Economics
Mr. Bernstein
From Short-Run to Long-Run Supply Curve
• AD/AS model predicts SRAS will shift until it
intersects with LRAS
at YP
• Example: labor
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