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9 May, 05:12

27. The aggregate supply curve has a significantly different curve or arc to it than the aggregate demand curve. What is one of the key reasons for the different shape of the aggregate supply curve?

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  1. 9 May, 06:12
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    Aggregate Supply = National Income

    Explanation:

    Aggregate Demand is total value of goods & services buyers are planning to consume. In a closed un-intervened economy : AD = Consumption (C) + Investment (I), C is positively related with income (Y) & I assumed to be autonomous.

    So the AD curve (plotted against Y) has an upward sloping curve (∵Y, C + ve relationship) having intercept on Y axis (∵ equal to autonomous C, I).

    Aggregate Supply AS is the total value of goods & services producers are planning to sell. It is equal to National Income because : this producers' desired / planned production level yields incomes which is distributed as factors incomes to factors of production. And, Income is either consumed or saved. So AS = C + S (Saving)

    Hence, AS (C+S) plotted against Y, is an upward sloping 45° line. Because such line has a special feature of having equal distance from X & Y axis & the things magnitude on both axis is equal, like Y = AS (i. e C + S)
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