Aggregate Supply

Aggregate Supply - Aggregate Supply(AS Curve The aggregate...

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Unformatted text preview: Aggregate Supply (AS) Curve The aggregate supply curve depicts the quantity of real GDP that is supplied by the economy at different price levels. The reasoning used to construct the aggregate supply curve differs from the reasoning used to construct the supply curves for individual goods and services. The supply curve for an individual good is drawn under the assumption that input prices remain constant. As the price of good X rises, sellers' per unit costs of providing good X do not change, and so sellers are willing to supply more of good X-hence, the upward slope of the supply curve for good X. The aggregate supply curve, however, is defined in terms of the price level . Increases in the price level will increase the price that producers can get for their products and thus induce more output. But an increase in the price will also have a second effect; it will eventually lead to increases in input prices as well,...
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