Module Aggregate Supply: Introduction and Determinants KRUGMAN'S MACROECONOMICS for AP* 18 Margaret Ray and David Anderson

What you will learn in this Module : 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

The relationship between the price level and the real GDP supplied Unlike AD, there is a Short run SRAS and a Long run LRAS Aggregate Supply

The Short-Run Aggregate Supply Curve Higher profit per unit incents greater output Largest % of costs is Nominal Wage Wages are inflexible up or down aka “sticky” Often tied to multiyear contracts

Shifts of the Short-Run Aggregate Supply Curve ∆ Legal Environment like Bus Txs, Subsidies, or Gov’t Regulations ∆ Input costs like Nominal Wages or commodities ∆ Productivity SRAS Decrease shifts left SRAS Increase shifts right

The Long-Run Aggregate Supply Curve All prices adjust including wages Prices have no affect on output Timeframe not measured in months,yrs Potential Output-all prices are flexible Factors that shift LRAS:Quantity, quality of resources, technology

Historically at Potential –only briefly Determined by Congress Budget Office Purple-actual below potential Green- actual above potential

From the Short Run to the Long Run