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.

See ACTUAL GROSS NATIONAL PRODUCT, POTENTIAL GROSS NATIONAL PRODUCT, ECONOMIC GROWTH.

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. Section III concludes the paper with a brief summary of the results.
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.
However, the market position of the combined entity in aggregates would be modest and the Commission concluded that the proposed acquisition would not create any risk of aggregate supply problems for other local ready-mixed concrete producers.
A survey of some principles and intermediate-level textbooks suggests that no such standard definitions of time horizons exist within macroeconomics, and the corresponding treatments of aggregate supply are also quite diverse.
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. This occurs principally because a rise in structural productivity growth has its counterpart in higher expectations for long-term corporate earnings.
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).
As a result, the Midtown South office market reached a significant milestone, as the aggregate supply of available office space fell below three million square feet (2.95 million) for the first time.
In particular, evidence suggests that there is a unit root in GDP and thus, deviations from trend are not purely transitory fluctuations driven by aggregate demand.[2] Output fluctuations are, to some extent, a function of permanent aggregate supply shocks.
The history of the Kuznets cycle illustrates how aggregate-demand shocks can produce endogenous changes in aggregate supply. Economies of scale, learning effects, and convergences of expectations - many within the spatial contexts of city building and frontier settlement - seem to have been especially important in making the aggregate supply "path-dependent." Institutional innovation (particularly government regulation) has been another source of endogenous change in aggregate supply.

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