1. Shapes of Aggregate Supply
AD/AS Model Continued

2. Aggregate Supply Curve
Aggregate-supply curve (AS)- how supply of goods & services for the entire economy changes with inflation
quantity of goods & services all firms produce at each price level
AS1
Price
Level
Real
GDP
AD1
AD2
Gov’t ↓ Income Taxes =>
Consumer income ↑
C ↑ => AD ↑ => R-GDP ↑ P2 Y2 E2 P1 Y1 E1
AD = C + I + G + NX

3. Different Shapes of AS Curves
AS Curves can have 3 different shapes
The Shape will depend on how prices/wages adjust to inflation
Upward
Sloping
Horizontal
Vertical Px
Level Px
Level Px
Level AS AS AS
Real
GDP
Real
GDP
Real
GDP

4. AS/AD Model AS/AD Model has 2 different AS curves
Short run curve (SRAS) is upward sloping
Long Run curve (LRAS) is vertical

5. Worksheet

6. without inflation changing
Can increase Supply
With some inflation
Real GDP can
Worksheet Review: Px
Level AS AS Px
Level Px
Level AS
Real
GDP
Real
GDP
Real
GDP
Cannot increase Supply. Only
Inflation changes => not output
Real GDP cannot change
Can increase supply
without inflation changing
Real GDP can