Fig. 20. The aggregate demand curve
Aggregate supply curve has a slightly different look. Form AS depends on what happens to the cost per unit of output, and therefore the price, which should allow firms to cover costs and make a profit with an increase in real national output.
1. Horizontal line indicates that an increase RNP is at constant prices for the goods. This is possible when there is a significant unemployment and low employment of resources (short-term).
2. The intermediate segment increased production of RNP requires the involvement of a large number of resources, which, in turn, may be less skilled workers are less productive technology, which increases the costs, which means - the price of food to the production was profitable.
3. On the vertical segment economy reached full employment level at a given volume of production. Firms can expand production, while increasing the price, but it leads to overflow of resources from one to another grown without increasing the CHP, in other words, the AS curve becomes vertical lineConclusion: Thus, the increase in supply RPP left to right, depending on the level of prices, ie, there is a movement along the curve.
The offset to the left (right) AS curve characterizes the changes in aggregate supply.
This is a result of the influence of non-price factors:
1. Change in performance.
2. Change in the prices of resources.
3. Taxes.
4. Government regulation.
We consider separately the formation of aggregate demand and aggregate supply to achieve balance in the market, i.e. the equilibrium price level and equilibrium PPR, i.e. Q = Q AS AD.
P AS
|
P3
 |
E AD3
P2 E
P1 AD1 AD2
Q1 Q2 Q3 Q (RDP)
Fig. 21. Balance the aggregate demand and aggregate supply
If the equilibrium is reached in a horizontal section (in the short term), to obtain more income producers have to increase the volume of production, thereby bringing into production more resources and ensuring the growth of RDP.
If the equilibrium is reached at the intermediate segment, the result of competition in the market is formed equilibrium output and the equilibrium price, i.e. increasing the nominal NP and RNP.
If the balance is provided on the vertical segment (full employment of resources), the increase in prices due to the firm loses the incentive to expand production and increase RNP only nominal NP.
When striking a balance between aggregate demand and aggregate supply questions arise:
- Whether there are economic mechanisms operating automatically and makes full use of resources?
- How can we maintain the aggregate demand?
- How is the equilibrium at full employment?
