Aggregate Supply (AS):

• Aggregate supply (AS) represents the total quantity of real Gross Domestic Product (GDP) that an economy is willing and able to produce at different price levels in a given time period.
• The aggregate supply curve (AS curve) is a graphical representation of this relationship between the price level and the quantity of real GDP supplied in the economy.
• The AS curve typically slopes upward from left to right, and this is due to several key factors:
  1. Profit Motive: At higher price levels, businesses and producers generally experience higher profits for the goods and services they sell. As a result, they are willing to increase their level of output in response to the opportunity for increased revenue.
  2. Resource Utilization: When prices are rising, firms may find it more profitable to utilize their available resources more fully to meet the higher demand. This can lead to an increase in the quantity of goods and services supplied.
  3. Wage and Cost Adjustments: During periods of rising prices (inflation), firms may adjust wages and production costs, which can encourage more production. It becomes more cost-effective to hire additional labor or use available resources to meet the higher demand associated with inflation.
• It's important to note that the AS curve represents the total quantity of real GDP supplied in the economy, which is the sum of all goods and services produced. This curve can shift to the right or left due to various factors, including changes in production technology, labor force size, and resource availability.
• The upward-sloping AS curve is a key component of the Aggregate Demand and Aggregate Supply (AD-AS) model, which is used to analyze the interactions between the goods and services market (as represented by aggregate demand) and the factors of production market (as represented by aggregate supply) in an economy.

Short-Run Aggregate Supply (SRAS) and its Determinants:

• The Short-Run Aggregate Supply (SRAS) curve represents the quantity of real GDP that an economy is willing and able to produce in the short run, typically over a period of 1 to 2 years.
• The SRAS curve can shift to the right or left due to changes in various factors that affect the conditions of supply in the short run. The main determinants of SRAS are:
  1. Cost of Employment: This includes factors such as wages, taxes on labor, and labor productivity. If labor costs increase, it will lead to an inward shift of the SRAS curve, indicating a reduction in the quantity of real GDP supplied in the short run. Conversely, if labor costs decrease, it would shift the SRAS curve outward, indicating an increase in the quantity of real GDP supplied.
  2. Cost of Other Inputs: This refers to the costs associated with other factors of production, such as raw materials, commodity prices, and exchange rates if products are imported. For example, a stronger domestic currency can lead to cheaper imports, reducing production costs and causing the SRAS curve to shift outward. On the other hand, a weaker currency may increase production costs, leading to an inward shift of the SRAS curve.
  3. Government Regulation and Intervention: Government policies and regulations, such as environmental laws, green taxes, and business regulations, can impact the cost of doing business. Increased regulation may lead to higher production costs, resulting in a leftward shift of the SRAS curve.
  4. Labor Migration: If there is a net outward migration of workers, it can lead to a "brain drain" in the domestic economy as skilled workers move elsewhere. This can reduce the labor force and labor productivity, causing a leftward shift of the SRAS curve.
  5. Business Capital Spending: A decrease in business capital spending, which includes investments in equipment, machinery, and infrastructure, can reduce the economy's productive capacity. As a result, the SRAS curve will shift inward, indicating a decrease in the quantity of real GDP supplied in the short run.
• The SRAS curve represents the short-term responsiveness of the economy to changes in these determinants. It's important to note that the Long-Run Aggregate Supply (LRAS) curve represents the economy's productive capacity in the long run, and in the long run, the level of output is determined by factors such as technology, labor force size, and capital stock, which are not influenced by short-term changes in costs or regulations.

Keynesian View of Aggregate Supply:

• In the Keynesian view of the aggregate supply (AS) curve, the price level is considered to be relatively fixed in the short run until all available resources in the economy are fully employed. The AS curve proposed by Keynes features two distinct sections:
  1. Horizontal Section (Inelastic Range): In this section, the AS curve is horizontal, indicating that the economy can increase its output significantly without experiencing upward pressure on prices. This suggests that the price level is relatively fixed, and there is spare capacity in the economy. When resources are underutilized and there is substantial unemployment, the economy can expand output without a substantial increase in the price level. This is often associated with periods of economic downturns and high unemployment.
  2. Vertical Section (Elastic Range): The AS curve becomes vertical in this section, indicating that the economy has reached full employment and is operating at its productive capacity. In this state, any attempts to further increase output will lead to significant upward pressure on prices. The price level becomes highly sensitive to changes in demand, and the economy is unable to expand output without inflationary pressures. This section represents the long-run perspective in which resources are fully employed.
• The Keynesian view is rooted in the idea that in the short run, prices and wages are sticky, meaning they do not adjust quickly to changes in demand. As a result, changes in aggregate demand (AD) primarily affect the level of output and employment, while prices remain relatively stable. Only in the long run, as resources become fully employed, do price adjustments become more significant.
• This view is often associated with Keynesian economics, which emphasizes the role of government policies, such as fiscal and monetary policies, in addressing economic downturns and stabilizing the economy. Keynes argued that during periods of economic recession, the government should stimulate demand to bring the economy back to full employment and the inelastic range of the AS curve.

Factors Influencing the Long-Run Aggregate Supply (LRAS):

The Long-Run Aggregate Supply (LRAS) curve represents the economy's potential output when all factors of production are fully employed. Changes in the LRAS are influenced by various factors that impact the quantity and quality of these factors of production:

1. Technological Advances: Technological progress and innovation have a significant impact on LRAS. Increased investment in research and development (R&D) and the adoption of new technologies can enhance an economy's productive capacity. This leads to higher potential output, either by producing more goods and services or by improving their quality.