Short-run aggregate supply refers to the overall production in an economy during the short run. In contrast, a fall in the level of prices tends to lead to a decrease in the number of goods and services supplied. Over a year or two, a rise in the overall level of prices in the economy tends to lead to an increase in the number of goods and services that are supplied. On the other hand, the price level in an economy influences to a great extent the level of production that takes place in the short run. Because the general level of prices does not affect the capacity of the economy to create goods and services over the long run, the aggregate supply curve, in the long run, is vertical.
The behavior of aggregate supply is what most clearly differentiates the economy in the short run from the economy's behavior in the long term. To understand short-run aggregate supply definition you need to understand that an economy is characterized by its long-run production and its short-run production. You will be able to answer all these questions once you read our explanation of the short-run aggregate supply. Why do businesses cut down their production when the price level increases? How do wages being sticky affect businesses' production in the short run? Can a shift in the short run overall production cause inflation? And what causes the shift in short-run aggregate supply? Long-Run Consequences of Stabilization Policies.
Expansionary and Contractionary Monetary Policy.Equilibrium in the Loanable Funds Market.
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