How does the income level of a country have an impact on influencing Aggregate Supply? Could...

How does the income level of a country have an impact on influencing Aggregate Supply?

Could you porvide examples with your answers? Many Thanks

Expert Solution

Aggregate supply is affected by the production capacity (availability of capital, materials, labor, etc.) as well as the aggregate demand. Capital accumulation depends on the availability of credit, which depends on the savings rate in the economy. The savings rate in the economy depends on income level. Therefore, higher the income level, higher the savings rate, higher the availability of credit and higher the production capacity.

Also, higher income results in higher aggregate demand. Higher aggregate demand influences firms to supply more, expand capacity and increase aggregate supply. Therefore, higher income level increases aggregate supply by increases aggregate demand.

One example is China and Bangladesh. China's income level is much higher that of Bangladesh. This has resulted in a higher capital accumulation, production capacity and aggregate supply in China as compared to Bangladesh.

Rahul Sunny answered 2 years ago

How could you have used relatively simple macroeconomic models (eg aggregate demand and aggregate supply, or...

How could you have used relatively simple macroeconomic models (eg aggregate demand and aggregate supply, or IS/LM) to analyse and anticipate the likely effects of the crisis on levels of global economic activity, unemployment and inflation?

What makes the aggregate supply curve shift and how does a shift in the aggregate supply...

What makes the aggregate supply curve shift and how does a shift in the aggregate supply curve help expand the economy?

how does aggregate demand and aggregate supply get affected by a trade war? And how does...

how does aggregate demand and aggregate supply get affected by a trade war? And how does a country like Australia get affected by the current trade war between China and the United states?

Explain the impact of government expenditures on the equilibrium level of income. How does this differ...

Explain the impact of government expenditures on the equilibrium level of income. How does this differ from the effect of changes in taxation? What is the multiplier?

“to increase the aggregate income level, a country which adopts a flexible exchange rate system with...

“to increase the aggregate income level, a country which adopts a flexible exchange rate system with imperfect capital mobility should implement expansionary fiscal policy”. do you agree with this statement? why and why not? explain and show the graft and compare the effects of both policies (monetary and fiscal) on the aggregate income level. show the graft and answer.

“To increase the aggregate income level, a country which adopts a flexible exchange rate system with...

“To increase the aggregate income level, a country which adopts a flexible exchange rate system with imperfect capital mobility should implement expansionary fiscal policy”. Do you agree with this statement? Why and why not? Explain and You need to show and compare the effects of both policies (monetary and fiscal) on the aggregate income level].

How could an increase in the money supply have caused the Japanese price level to rise...

How could an increase in the money supply have caused the Japanese price level to rise even though nominal interest rates temporarily remained close to zero?

A. Why does there seem to be three different Aggregate Supply curves in the Aggregate Supply/Aggregate...

A. Why does there seem to be three different Aggregate Supply curves in the Aggregate Supply/Aggregate Demand models? The Aggregate Supply curve changes depending the time of year. The Aggregate Supply curve usually is upward sloping The Aggregate Supply curve usually trends toward equilibrium The Aggregate Supply/Aggregate Demand model can have any of the three supply lines, depending on economic circumstances. B. If the Aggregate Supply line is shown as a vertical line: The economy is at less than full...

explain how consumers impact aggregate demand and supply in the economy (example).

Describe how the aggregate demand/aggregate supply model interact at the macroeconomic level. Explain how productivity growth...

Describe how the aggregate demand/aggregate supply model interact at the macroeconomic level. Explain how productivity growth and changes in input prices change the aggregate supply curve. Identify influences on aggregate demand. Explain how the aggregate demand/aggregate supply model incorporates growth, unemployment, and inflation.

Question