aggregate supply

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Aggregate Supply

The total supply of goods and services in an economy at a given overall price and time. Aggregate supply is tracked on an aggregate supply curve, which plots supply against price. When prices are rising, this indicates that the aggregate supply is inadequate to meet aggregate demand; this leads businesses to expand their operations and produce more goods and services. In the short term, aggregate supply is responsive to price movements, but, in the long term, it only increases in response to increased productivity.

aggregate supply

the total amount of domestic goods and services supplied by businesses and government, including both consumer products and capital goods. Aggregate supply interacts with AGGREGATE DEMAND to determine the EQUILIBRIUM LEVEL OF NATIONAL INCOME (see AGGREGATE SUPPLY SCHEDULE).

In the short term, aggregate supply will tend to vary with the level of demand for goods and services, although the two need not correspond exactly For example, businesses could supply more products than are demanded in the short term, the difference showing up as a build-up of unsold STOCKS (unintended INVENTORY INVESTMENT). On the other hand, businesses could supply fewer products than are demanded in the short term, the difference being met by running down stocks. However, discrepancies between aggregate supply and aggregate demand cannot be very large or persist for long, and generally businesses will offer to supply output only if they expect spending to be sufficient to sell all that output.

Over the long term, aggregate supply can increase as a result of increases in the LABOUR FORCE, increases in CAPITAL STOCK and improvements in labour PRODUCTIVITY.


References in periodicals archive ?
A rising price level in the short-run, however, may originate from either increased aggregate demand or decreased aggregate supply and these different causes of inflation have opposite effects on real income and in turn the exchange rate.
We examine the role of aggregate demand price level elasticity for the balance of trade when an economic expansion happens as a result of either an increase of aggregate demand or an increase of short-run aggregate supply.
In the long term, the aggregate supply is inextricably linked with the aggregate demand.
Aggregate supply-driven deflation, however, is an important issue going forward as the continued opening of China and India and the ongoing rapid technological gains should continue to buffet the world economy with positive aggregate supply shocks.
With respect to aggregate supply, there appears to be universal agreement that the long-run aggregate supply curve is vertical at the full-employment level of real gross domestic product.
The model developed below assumes rational expectations and uses a Lucas (1972) aggregate supply curve under which aggregate supply is positively related to innovations in the price level.
j]], and aggregate supply is given by equations (10) evaluated at (9) and (12), aggregated over all firms,
Essentially, the Internet may shift out the aggregate supply curve of the economy.
The problem is that the pickup in productivity tends to create even greater increases in aggregate demand than in potential aggregate supply.
The macroeconomic model of aggregate supply and demand portrays the market forces of an economy and the interrelationships between these forces that affect supply of and demand for a good (Samuelson & Nordhaus, 1985).
The short-run aggregate supply curve is upward sloping under the assumption that capacity utilization can be varied in the short run to exploit the profit opportunities afforded by changes in aggregate demand.

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