Chapter 29

Aggregate Supply

- describes the behavior of the production side of the economy

Aggregate Supply Curve

- schedule showing the level of total national output that will be produced at each possible price
level, other things held constant.

Short-run Aggregate Supply

- prices and wages have elements of inflexibility

> higher prices are associated with higher production of goods

and services. This is shown as an upward-sloping AS curve.

Long-run Aggregate Supply

- several years or decades

- prices and wages are perfectly flexible
- Output is determined by potential output and is independent of the price level.
- long-run aggregate supply schedule as vertical

Determinants of Aggregate Supply

AS depends on Potential Output and Input Costs

Potential Output

- Potential GDP
- maximum sustainable output that can be produced without triggering rising inflationary
pressures
- influenced by quantity and quality of labor, supply of capital and natural resources, and level of
technology
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