Page 1 :
Explain the concept of aggregate supply., Byarggagate supply Keynes means the total money value of (final) goods and services, Ans., in, produced an economy per year at constant prices. Two components of aggregate supply are the, , following
Page 2 :
+3, , (Arts) Macroeconomics 1, 1. the, , 2. the, , 95, , output of all final consumer, goods and services, and, output of producer or, capital (investment) good., , apt8OOds are the creator of other goods, For example, textile producing macnin, , used to prduce textile (or consumer goods). Machines are also used to produce other machines tor, , capital goods). For these reasons capital goods are also called, producer goods., National product, In, ract, ageregate supply is another name of GNP. Both represent the total market value or a, , final goods and services produced in an economy per annum. In another sense, GNP is the same as, , nationa come., , I he reson, , is that aggregate supply, , money value of all, , final, , goods, , and, , services, produced and sold is disturbuted amog the various factors of production as rent, wages, interest, and, or, , profits as rewards for their respective contributions to GNP, The Short-run Production Function, , Much like his predecessors (like classicists), Keynes derived his aggregate supply function, , from the short-run aggregate production function which is expressed as, , Y=F{LK,T), , ...4), , Where Y is GNP L is labour input (which is the only variable factor), K is the fixed stock of, , capital, and Tstands for unchanged technology. Thus the aggregate production may also be written, as, , Y = F(L), , 5), , This means that in the short run more output can be produced only by employing more, labourers for using more labour inputs), so long as the economy has unutilised resources (mainly, , manpower) and of course, excess production capacity., Since Keynes assumed that the size of the labour force remains constant in the short run, the, , level of employment (or the utilisation of the labour forc) increases (falls) only if the demand for, labour increases (falls). After all the Keynesian model is a demand determined model., , Y, , AS curve with, a fixed price, level, , (with constant slope), , 45, National, income, , Fig., , Curve, The Keynesian Short-run AggregateSupply
Page 3 :
Rainbow's Eam Leader, , 96, , The, , Aggregate Suply Curvve, Since the aggregate price level is assumed to remain constant in the short run, the Keynesian, , agregate supply curve relates the level of aggregate output to national income. In fact, while, , drawing this supply curve money wages and productivity of labour are also assumed to remain, constant. These assumptions together imply that more output will be produced and supplied at the, , given price level if aggregate demand increases. Thus aggregate demand sets the tune and aggregate, supply dances at it., In the above figure we draw the Keynesian short-run aggregate supply curve as a 45 line OY, since aggregate supply or national product is always equal to national income. Due to constant, , marginal cost and average cost of production, the value ofaggregate output increases at the constant, rate along the 45 line., The 450 line shows two things:, 1. It shows that even at constant prices, varying amounts of, output (of both consumer and, capital goods) will be offered for sale in response to changes in aggregate demand. If, aggregate, demand rises, more output will be offered for sale until and unless the state of full, employment of, resources is reached. When full employment is reached, a society's actual, output will be equal to its, potential output. At this stage, no further increase in production and in, aggregate supply is possible., 2. Since national income is the same thing as natiomal, product, the 45°, , line represents national, income in nominal (money) terms., 3., Discuss the economic consequences in case of shift of, aggregate demand curve., Ans. The classical economists equated, macroeconomic, equilibrium with full employment., They belived in the Say's law and wage-price flexibility which, togetherr ensured full emplovment in, a self-adjusting free market-based capitalist cconomy. So the, attainment of full employnment was, automatic in the classical model., , Y C+ r, Al, G, tA, , E, , C+, C
