Aggregate Supply

You are expected to explain/analyze (AO2) and draw (AO4) short-run aggregate supply, its determinants, and shifts on its curve

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Alternative Views of AS

Macroeconomic Equilibrium

Aggregate supply is the total amount of goods and services that firms are willing and able to provide in an economy, in a certain time period (usually a year).

There are two main economic schools of thought regarding Aggregate Supply.

The first one is the Neoclassical view, which believes in the Short-Run and Long-Run Aggregate Supply curves (SRAS and LRAS).
The second one is the Keynesian (pronounced Kaynsian) view, which only believes in one combined curve, simply called AS.

They believe in different things regarding which types of government policies are best, but we'll look at that later.

On this page, we only look at SRAS, as this is what the syllabus states should be here (for some reason). However, on the next page, we look at LRAS and the complete Keynesian view.

Short-Run Aggregate Supply Curve (AO4)

Shows the planned output at different price levels
Wage and state of technology are constant
Higher prices mean higher supply, which is why it's upwards-sloping (similar to the Supply curve)

Determinants of SRAS (AO2)

Costs of Factors of Production: Labour costs (wages), raw material costs, exchange rates, interest rates, and bureaucracy/administration
Indirect Taxes

These determinants will shift the SRAS curve either left or right, much like a regular supply curve.

Shifts of SRAS (AO4)

The SRAS curve shifts in the same way as a regular Supply curve.

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