Give one example to show what will a) increase and b) decrease the aggregate supply curve....

Give one example to show what will a) increase and b) decrease the aggregate supply curve.
Briefly explain the essential features of the "Keynesian" short-run aggregate supply curve.

Solutions

Expert Solution

The aggregate supply which is an upward sloping curve implying a direct relationship between price of good and supply of good.

1. An increase in the aggregate supply can take place due to change in price or change in factors other then the price. If there is an increase in the price the aggregate supply of the good will increase and this will be seen as a movement on the supply curve. However, if there are changes in factors other than price such as employment costs- reduction in wages, technological advancement , reduction in cost of inputs the supply curve will shift outwards. This means at the same price the firm is supplying higher quantity of the good. Thus, an increase in the real output.

2. Similarly, a fall in price will have decrease the supply of goods and this can be seen as a decline along the curve. For, the curve to shift leftwards there could be reason such as increase in taxes on carbon duties, stricter regulations affecting the cost of production, increase in the labor wages.

ESSENTIAL FEATURES OF AGGREGATE SUPPLY CURVE

1. It is for the short-run

2. The factor are fixed ( Capital ) and the only variable factor is labor.

Rahul Sunny answered 1 year ago

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