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AP Economics

AP Economics. Mr. Bernstein Module 18: Aggregate Supply: Introduction and Determinants March 20, 2014. AP Economics Mr. Bernstein. Aggregate Supply: Intro and Determinants Objectives - Understand each of the following:

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AP Economics

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  1. AP Economics Mr. Bernstein Module 18: Aggregate Supply: Introduction and Determinants March 20, 2014

  2. AP EconomicsMr. Bernstein Aggregate Supply: Intro and Determinants • Objectives - Understand each of the following: • How the aggregate supply curve illustrates the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy • What factors can shift the aggregate supply curve • Why the aggregate supply curve is different in the short run from in the long run

  3. AP EconomicsMr. Bernstein Aggregate Supply • The relationship between aggregate price level demand and the aggregate quantity of output supplied • In the short run, SRAS is upward sloping • In the long run, LRAS is vertical at potential GDP

  4. AP EconomicsMr. Bernstein The Short-Run Aggregate Supply Curve • If the price of a unit of output is rising faster than production costs, supply will rise • Why? Some input prices are sticky, particularly wages, so as prices rise profits go up in the short run

  5. AP EconomicsMr. Bernstein AS Curve Shifters • D Commodity Prices • D Nominal Wages • D Productivity (Increase in AS is a shift “right” and decrease in AS is a shift “left”)

  6. AP EconomicsMr. Bernstein The Long-Run Aggregate Supply Curve • What if wages were flexible and followed prices? • Prices would rise, so would wages, and supply would not move • In Long Run, wages are flexible, so LRAS is vertical • At Potential GDP YP

  7. AP EconomicsMr. Bernstein From Short-Run to Long-Run Supply Curve • AD/AS model predicts SRAS will shift until it intersects with LRAS at YP • Example: labor

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