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Aggregate Supply

  • Aggregate supply – amount of goods and services produced by an economy.
  • Function of the price level – higher  prices bring about a greater amount of supply in the short run.


The SAS and LAS curves will both shift when:

  • The full-employment quantity of labor changes
  • The amt of available capital in the economy changes
  • As technology improves the productivity capital, labor, or both.

There are some factors that will shift SAS, but not affect LAS.
  • If the wage rate or prices of other productive inputs increase, the SAS curve will shift to the left, a decrease in short-run aggregate supply.
  • When businesses observe a rise in resource prices, they will decrease their output as the profit maximizing level of output declines.

Sample Question

Which of the following events is least likely to cause a downward shift in short-run aggregate supply?

  1. A labor stoppage causes the price of steel to rise.
  2. Inflation increases from 4% to 7%.
  3. Oil exporting countries reduce their production levels



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