Question

Providing an example of each, explain fully the differences between an increase in:

Aggregated demand

Short-run aggregate supply

Long-run aggregate supply

Answer 1

Answer-Increase in aggregrate demand

In the long-run the price of commodities leads to increase in aggregate demand,when the demand for the product increases it causes shift of curve towards right.The aggregate supply is determined by the aggregate demand which leads to an increase of the output and prices of a commodities.for eg -it is based on consumption,investment,government spending and exports of goods,if there is improved techology it will lead to increase in output and increase in investment also,which will decrease the rate of interest.

-The difference between short run aggregate supply and long run aggregate supply are:-

• In short run aggregate supply capital is fixed in this the proper utilisation of resources are there while in long run aggregate supply is determined by factors of production.
• In the short run,an increase in the price leads to increase in wages of the workers while in long run it is determined by the investment.
• In short run,if there is hike in wages it will shift to the left,while if there is increase in investment or growth in the size of the workers it will shift to the right.
• Short run curve is an upward slope while long run is perfectly vertical.

--------------------------------------------------------------------------------------------Thanks