Explain The Aggregate Supply In The Short Run
Explain the aggregate supply in the short run.
In the short-run, the aggregate supply curve is upward sloping. There are two main reasons why the quantity supplied increases as the price rises:
1. In the short-run, the nominal wage rate is fixed. As a result, an increasing price indicates higher profits that justify the expansion of output.
2. An alternate model explains that the AS curve increases because some nominal input prices are fixed in the short-run and as output rises, more production processes encounter bottlenecks. At low levels of demand, large numbers of production processes do not make full use of their fixed capital equipment. As a result, production can be increased without much diminishing returns. The average price level does not have to rise much in order to justify increased production. In this case, the AS curve is flat. Likewise, when demand is high, there are few production processes that have unemployed fixed outputs. Any increase in demand production causes the prices to increase which results in a steep or vertical AS curve.
The horizontal segment of the curve reflects the Keynesian notion that a decline in demand leads to a decline in real production, primarily because prices remain constant. The vertical segment is a recognition that the total quantities of resources are fixed and that total production is ultimately limited, which results in full employment.
In the short-run, firms possess fixed factors of production, including prices, wages, and capital. It is possible for the short-run supply curve to shift outward as a result of an increase in output and real GDP at a given price. As a result, the short-run aggregate supply curve shows the correlation between the price level and output.
12. Explain the foreign exchange market and the balance of payments.
Every day currencies are demanded and supplied. The price of a currency in terms of another currency is called the exchange rate. The exchange rate can be expressed in
In the short-run, the aggregate supply curve is upward sloping. There are two main reasons why the quantity supplied increases as the price rises:
1. In the short-run, the nominal wage rate is fixed. As a result, an increasing price indicates higher profits that justify the expansion of output.
2. An alternate model explains that the AS curve increases because some nominal input prices are fixed in the short-run and as output rises, more production processes encounter bottlenecks. At low levels of demand, large numbers of production processes do not make full use of their fixed capital equipment. As a result, production can be increased without much diminishing returns. The average price level does not have to rise much in order to justify increased production. In this case, the AS curve is flat. Likewise, when demand is high, there are few production processes that have unemployed fixed outputs. Any increase in demand production causes the prices to increase which results in a steep or vertical AS curve.
The horizontal segment of the curve reflects the Keynesian notion that a decline in demand leads to a decline in real production, primarily because prices remain constant. The vertical segment is a recognition that the total quantities of resources are fixed and that total production is ultimately limited, which results in full employment.
In the short-run, firms possess fixed factors of production, including prices, wages, and capital. It is possible for the short-run supply curve to shift outward as a result of an increase in output and real GDP at a given price. As a result, the short-run aggregate supply curve shows the correlation between the price level and output.
12. Explain the foreign exchange market and the balance of payments.
Every day currencies are demanded and supplied. The price of a currency in terms of another currency is called the exchange rate. The exchange rate can be expressed in