Question

Does fiscal and monetary policy affect Aggregate Supply? What other factors should be considered when making a determination Aggregate Supply is most important?

Answer 1

Yes there is no doubt that they can affect but effect of monetary policy is more on aggregate demand than on aggregate supply. E. G govt can invest in public undertakings as part of fiscal policy to increase supply. Similarly investment on roads, dams etc increase supply. Monetary policy can be used to curtail speculation to increase supply. The 2nd part of your question is not right. It is not clear what you want to ask. I think you want to know major determinants of aggregate supply. The other factors are mood of business community, technological progress etc . If there is depression aggregate supply is more relative to demand and aggregate supply will tend to fall. Reverse is the case during inflation and positive mood of business community. Aggregate supply is less than aggregate demand and it will tend to rise. Similarly as price increases aggregate supply increases and as it falls aggregate supply falls