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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Cara Novak

Business

11 October, 00:33

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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Answers (1)

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Jon Molina · Answer 1

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)