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Module 18 Aggregate Supply: Introduction and Determinants KRUGMAN'S MACROECONOMICS for AP* Margaret Ray and David Anderson What you will learn in this Module: • 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 Aggregate Supply • The relationship between the price level and the real GDP supplied •In the short run, there is a positive slope to the SRAS curve. •In the long run, the LRAS curve is vertical at the level of potential GDP. The Short-Run Aggregate Supply Curve • Profit per unit of output • Nominal Wage • Sticky Wages • SRAS Shifts of the Short-Run Aggregate Supply Curve • ∆ Commodity Prices • ∆ Nominal Wages • ∆ Productivity The Long-Run Aggregate Supply Curve • Flexible Wages • Long Run • LRAS • Potential Output • Factors that shift LRAS From the Short Run to the Long Run Long Run – all inputs become variable Table 18.1 Factors that Shift the Short-Run Aggregate Supply Curve Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Figure 18.2 Shifts of the Short-Run Aggregate Supply Curve Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers Figure 18.5 From the Short Run to the Long Run Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers Figure 18.1 The Short-Run Aggregate Supply Curve Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers Figure 18.3 The Long-Run Aggregate Supply Curve Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers Figure 18.4 Actual and Potential Output from 1989 to 2009 Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers Unnumbered Figure 18.1 Prices and Output During the Great Depression Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers