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Aggregate supply

Aggregate Supply and Aggregate Demand

❶Monetary Policy and the Fed Assuming no other changes affect aggregate demand, the increase in government purchases shifts the aggregate demand curve by a multiplied amount of the initial increase in government purchases to AD 2 in Figure

Aggregate Supply (AS) Curve

The Long Run
22.2 Aggregate Demand and Aggregate Supply: The Long Run and the Short Run
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Aggregate demand is the total amount of goods and services demanded Aggregation is a principal involving the combination of all future Gain a deeper understanding of aggregate supply and demand, forces which raise the price of goods and services. A new front in personal finance technology—data aggregation—seeks to make our financial lives easier. But here's why it may be stalling. Find out how the laws of supply and demand function for goods and services that are considered highly inelastic, including goods not yet discovered.

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Notice that we begin at point A where short-run aggregate supply curve 1 meets the long-run aggregate supply curve and aggregate demand curve 1. The point where the short-run aggregate supply curve and the aggregate demand curve meet is always the short-run equilibrium.

The point where the long-run aggregate supply curve and the aggregate demand curve meet is always the long-run equilibrium. Thus, we are in long-run equilibrium to begin. Now say that the Fed pursues expansionary monetary policy. In this case, the aggregate demand curve shifts to the right from aggregate demand curve 1 to aggregate demand curve 2. The intersection of short- run aggregate supply curve 1 and aggregate demand curve 2 has now shifted to the upper right from point A to point B.

At point B, both output and the price level have increased. This is the new short-run equilibrium. But, as we move to the long run, the expected price level comes into line with the actual price level as firms, producers, and workers adjust their expectations. When this occurs, the short-run aggregate supply curve shifts along the aggregate demand curve until the long-run aggregate supply curve, the short-run aggregate supply curve, and the aggregate demand curve all intersect.

This is represented by point C and is the new equilibrium where short-run aggregate supply curve 2 equals the long-run aggregate supply curve and aggregate demand curve 2. Thus, expansionary policy causes output and the price level to increase in the short run, but only the price level to increase in the long run.

BREAKING DOWN 'Aggregate Supply'

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Long run aggregate supply (LRAS) — Over the long run, only capital, labour, and technology affect the LRAS in the macroeconomic model because at this point everything in the economy is assumed to be used optimally. In most situations, the LRAS is viewed as static because it shifts the slowest of the three.

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Aggregate supply, also known as total output, is the total supply of goods and services produced within an economy at a given overall price level in a given period. It is represented by the aggregate supply curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide.

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Classical view of long run aggregate supply The classical view sees AS as inelastic in the long term. The classical view sees wages and prices as flexible, therefore, in the long-term the economy will maintain full employment. What are the main causes of shifts in aggregate supply? The main cause of a shift in the aggregate supply curve is a change in business costs – for example: drossel.tks in unit labour costs - i.e. labour costs per unit of output. 2.

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The long run aggregate supply curve (LRAS) is the long run level of real output which is sustainable given the current quantity and quality of the economy's scarce resources. Real output in the long run is not determined by the price level, and the long run AS curve will be vertical - short run changes in the price level do not alter an economy’s long-term . In the long run, though, since long-term aggregate supply is fixed by the factors of production, short-term aggregate supply shifts to the left so that the only effect of a change in aggregate demand is a change in the price level.