Aggregate Supply

key terms

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capital

economic fluctuations

GDP

labor

price level

aggregate supply: The amount of total goods and services supplied at a given price level.

Aggregate supply consists of all the goods and services produced by all the firms in an economy.  There is a difference in the decision of how much firms produce in the long and short run.

All this graph shows is that if the overall price level changes (say from 1 to 2) there will be no change in output (Y) (in this case it stays at 100).

The graph tells us that if there is a change in the general price level of the economy (say from 1 to 2) then GDP (Y) will rise (say from 70 million to 100 million).

There are things other than the price level that can affect the aggregate supply curve. Changes in the cost of producing goods will shift the aggregate supply curve.

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