AGGREGATE SUPPLY-1.docx - AGGREGATE SUPPLY: Aggregate...

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AGGREGATE SUPPLY:Aggregate supply measures thevolume of goods and services produced each year.AS represents the ability of an economy to deliver goods and services to meet demand.AGGREGATE SUPPLY/DEMAND CURVE(MODEL)This is a model that shows what determines total supply or total demand for the economy andhow total demand and total supply interact at the macroeconomic level.Movements of either the aggregate supply or aggregate demand curve in an AD/AS diagramwill result in a different equilibrium output and price level.If either the aggregate supply or aggregate demand curve shifts in the aggregatedemand/aggregate supply—AD/AS—model, the original equilibrium in the AD/AS diagramwill shift to a new equilibrium.Impact of GDP on aggregate supply curveIf the aggregate supply, also referred to as the short-run aggregate supply or SRAS, curveshifts to the right, then a greater quantity of real GDP is produced at every price level. If theaggregate supply curve shifts to the left, then a lower quantity of real GDP is produced atevery price level.

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