There are generally three alternative degrees of price-level responsiveness of aggregate supply. Any increase in demand and production induces increases in prices. On the other hand, when demand is high, few production processes have unemployed fixed inputs. Thus, production can be increased without much in the way of diminishing returns and the average price level need not rise much (if at all) to justify increased production.
At low levels of demand, there are large numbers of production processes that do not use their fixed capital equipment fully. The upward-sloping AS curve arises because (1) some nominal input prices are fixed in the short run and (2) as output rises, more and more production processes encounter bottlenecks. Both main types of inputs can be unemployed. An alternative model starts with the notion that any economy involves a large number of heterogeneous types of inputs, including both fixed capital equipment and labour.
#SUPPLY INSHORT RUN FULL#
(High unemployment leads to falling nominal wages which restore full employment.) Hence, in the long run, the aggregate supply curve is vertical. In the neoclassical long run, on the other hand, the nominal wage rate varies with economic conditions. Thus, a higher price level P implies a lower real wage rate and thus an incentive to produce more output. The short-run AS curve is drawn given some nominal variables such as the nominal wage rate, which is assumed fixed in the short run.There are two main reasons why the amount of aggregate output supplied might rise as price level P rises, i.e., why the AS curve is upward sloping:
0 kommentar(er)
