Question

Describe the two complementary explanations for why the aggregate supply curve is positively sloped.

Answer 1

Solution:-Here some factors will be most effected the the aggregate supply curve is positively sloped. Shitf in supply curve means the chenage in the slope of the curve.The aggregate supply curve is positively sloped during short run because input cost doesn’t adaptto change as quick in short run. There is a change in aggregate output and aggregate price level;while the determinants of short run aggregate supply stays the same. And it is vertical in long runbecause the economy is above and beyond its capacity to produce. The economy is at fullemployment of output during long run.Examples of factors that will shift the aggregate demand curve are wealth effect, export effect,and interest rate effect. Wealth effect will shift aggregate demand curve is when price levelincrease, while purchasing power of money decreases. Export effect is when export decreasesand domestic price level increase in the global marketplace causing foreign consumers to not tobuy much. Interest rate effect causes investment spending to decrease because interest rates areway too high. This is because prices are too high causes people to need more money to spend.