Aggregat Supply
AGGREGATE SUPPLY
Aggregate Supply- is a ____________or a _______ showing the level of ____________________ that firms will produce at each price level.
AGGREGATE SUPPLY CURVE
· 3 Distinct ranges. The shape of the aggregate supply curve _________ what happens to the ________________cost as GDP expands or contracts.
1. HORIZONTAL RANGE- the horizontal ___________ of the aggregate
supply curve along which the price level is constant as real ____________changes.
2. INTERMEDIATE RANGE- the ________segment of the aggregate supply curve lying between the horizontal range and the vertical range.
3. VERTICAL RANGE- the vertical segment of the aggregate supply curve along which the economy is at full capacity.
· DETERMINANTS OF AGGREGATE SUPPLY
1. Change in Input Prices
a. Domestic resource availability
· Land ex.
· Labor ex.
· Capital ex.
· Entrepreneurial ability ex.
b. Prices of imported resources- generally a decrease in the price of imported resources increase U.S. aggregate supply and an increase in the price reduces U.S. aggregate supply.
c. Market Power – ex. Org. of Petroleum Exporting Countries(OPEC) higher oil prices in 1970’s shifted U.S. aggregate supply curve leftward.
2. Change in productivity
Productivity is a measure of average ______ ________
or of real output per _____ of________.
Productivity= total output
total input
Ex.
By reducing the per- unit production cost, an increase in productivity shifts the aggregate supply curve to the right.
4. Change in legal-institutional environment
a. Business taxes and subsidies
· Business taxes- payroll or sales taxes paid by__________ will increase per-unit production costs and shift the aggregate supply curve to the _________.
· Business Subsidies- a payment or tax break by government to _________. It lowers production costs and _________ aggregate supply.
b. Government regulations
Government regulations are usually costly and tend to increase per unit-production costs and shift the aggregate supply curve to the _____. Proponents of deregulation of the economy have argued forcefully to __________ the economy so _________ [next page]