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101 Concepts for the Level I Exam

Concept 23: Aggregate Supply Curve

The aggregate supply curve shows the positive relationship between GDP and the price level

  • In the very short run, companies change output to some degree without changing prices.
  • In the short run input prices are fixed so businesses expand real output when output prices increase.
  • In the long run aggregate supply is perfectly inelastic (vertical) and represents the potential GDP which is the full-employment level of economic output.

1

Shifts in the SRAS are cause by changes in input prices, expectations about the future, changes in business tax rates, changes in subsidies, currency exchange rates.

Shifts in the LRAS are caused by changes in labor supply, availability of natural resources, stock of physical capital, changes in productivity and technology

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