The concepts of supply and demand can be applied to the economy as a whole.
Log in moon990519 8 years agoPosted 8 years ago. Direct link to moon990519's post “Can the full employment G...” Can the full employment GDP increase over time, when there are increase in technology-leading to higher productivity in the economy, increase in supply of labour and capital, increase in efficiency? • (10 votes) Xiaotong Jia 8 years agoPosted 8 years ago. Direct link to Xiaotong Jia's post “Yes, full-employment GDP ...” Yes, full-employment GDP is the potential GDP = Total Hours Worked x Labor productivity. I believe it's called sustainable growth when the potential GDP grows over time, which can be driven by either increase in labor force, or increase in labor productivity. Labor productivity (Y/L) can be further determined by Capital-to-labor ratio(K/L) and technology advancement (A) given we assume aggregate production function as Y=A*f(L,K) and the function is hom*ogeneous to degree one. But solely increase in the input of capital won't help sustain growth, especially when capital per worker is already very high in most developed countries, because of the diminishing return. To answer your question, I believe tech advance and increase in labor supply will certainly drive full employment GDP, as for increase in capital, it depends. Hope it helps. (13 votes) weems.joshua7 6 years agoPosted 6 years ago. Direct link to weems.joshua7's post “1.) The economic reason t...” 1.) The economic reason that the aggregate supply curve slopes us is because when the price level for outputs increases while the price level of inputs remains fixed, the opportunity for additional profits encourages more production. Academy 7 years agoPosted 7 years ago. Direct link to Academy's post “"The interest rate effect...” "The interest rate effect explains that as outputs rise, the same purchases will take more money or credit to accomplish. " How does this follow? If outputs rise, shouldn't prices fall? • (3 votes) Bharath Reddy Makthal 6 years agoPosted 6 years ago. Direct link to Bharath Reddy Makthal's post “As the outputs rise the p...” As the outputs rise the price levels will also rise(refer to short-term supply curve ).So far the interest rate is concerned the central banks would impose more interest rate for lending the money as there will be more demand for money now (since price level have gone up and more money is required for making a purchase at the current price levels) (3 votes) DannyMan 4 years agoPosted 4 years ago. Direct link to DannyMan's post “Why is it that AS can't c...” Why is it that AS can't cross potential GDP in the long-run? • (2 votes) sangsurya112 3 years agoPosted 3 years ago. Direct link to sangsurya112's post “The answer belongs to thi...” The answer belongs to this paragraph "The economic intuition here is that if prices for outputs were high enough, producers would make fanatical efforts to produce: all workers would be on double-overtime, all machines would run 24 hours a day, seven days a week. Such hyper-intense production would go beyond using potential labour and physical capital resources fully to using them in a way that is not sustainable in the long term. Thus, it is indeed possible for production to sprint above potential GDP, but only in the short run." That means, the production just condusively taking a long-run if they are stay in the potential GDP and taking rest the energy to another they. If the company pursue the production into long-run AS or the real AS possibility, they just can take it a short-run because the labour factor can't stay handle it in long-run. (1 vote) Fleur Neerings 7 years agoPosted 7 years ago. Direct link to Fleur Neerings's post “Is the potential GDP/Full...” Is the potential GDP/Full-employement GDP line the same as the Long Run Aggregate Supply curve? • (1 vote) Justin Williams 6 years agoPosted 6 years ago. Direct link to Justin Williams's post “The long-run aggregate su...” The long-run aggregate supply curve is more leftward than the potential GDP/Full-employment GDP line because the LRAS curve represents the standard production level of a healthy economy, No it doesn't. (2 votes) Jerry Meng 4 months agoPosted 4 months ago. Direct link to Jerry Meng's post “Is my understanding right...” Is my understanding right? CPI is an index for output price. PPI is an index for input price • (1 vote) Jasmine Hill 6 years agoPosted 6 years ago. Direct link to Jasmine Hill's post “1. What is the economic r...” 1. What is the economic reason that the aggregate supply curve, or short run aggregate supply curve, slopes up? 2. What are the components of the aggregate demand curve? 3. What are the economic reasons that the aggregate demand curve slopes down? 4. Briefly explain the reason for the near-horizontal shape of the aggregate supply curve, or short run aggregate supply curve, on its far left. 5. Briefly explain the reason for the near-vertical shape of the aggregate supply curve, or short run aggregate supply curve, on its far right. 6. What is potential GDP? • (1 vote) jjosephine1115 6 years agoPosted 6 years ago. Direct link to jjosephine1115's post “Briefly explain the reaso...” Briefly explain the reason for the near-vertical shape of the aggregate supply curve, or short run aggregate supply curve, on its far right ?the answer is this happens when unemployment is practically zero, and all factories are running at full capacity. • (1 vote) jjosephine1115 6 years agoPosted 6 years ago. Direct link to jjosephine1115's post “Briefly explain the reaso...” Briefly explain the reason for the near-horizontal shape of the aggregate supply curve, or short run aggregate supply curve, on its far left?The answer is the real GDP and the level of GDP adjusted for inflation. • (1 vote) jjosephine1115 6 years agoPosted 6 years ago. Direct link to jjosephine1115's post “What is potential GDP?the...” What is potential GDP?the maximum quantity that an economy can produce given its existing levels of labor, physical capital, technology, and institutions. • (1 vote)Want to join the conversation?
2.) The components of the aggregate demand curve are: Consumption, Investment, Government Spending, and Net Exports.
3.) The economic reasons that the aggregate demand curve slopes down because it shows the relationship between the price level for outputs and the quantity of total spending in the economy.
4.) The near-horizontal shape of the aggregate supply curve on its far left represents real GDP—that is, the level of GDP adjusted for inflation.
5.) The near-vertical shape of the aggregate supply curve on its far right represents the price level which is an index number, like the GDP deflator.
6.) Potential GDP is the maximum quantity that an economy can produce given full employment of its existing levels of labor, physical capital, technology, and institutions.
So as the interest levels rise, businesses and households will be unwilling to take loans at such an increased interest rate which affects the Investment (I) and also the Consumption(C) components of the aggregate demand.
~ The aggregate supply curve slopes up because when the price level for outputs increases while the price level of inputs remains fixed, the opportunity for additional profits encourages more production.
~ Aggregate demand includes all four components of demand: Consumption
Investment; Government spending; Net exports—exports minus imports
~ This downward slope indicates that increases in the price level of outputs lead to a lower quantity of total spending.
~ The far left of the aggregate supply graph is nearly flat because its listing when the economy is far below its potential GDP (maximum quantity that an economy can produce.
~ This happens when unemployment is practically zero, and all factories are running at full capacity.
~ Potential GDP is the maximum quantity of an economy can produce given full employment of its existing levels of labor, physical capital, technology, and institutions.
