{"id":31942,"date":"2021-09-27T12:50:42","date_gmt":"2021-09-27T12:50:42","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=31942"},"modified":"2025-05-29T12:58:01","modified_gmt":"2025-05-29T12:58:01","slug":"aggregate-supply","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/aggregate-supply\/","title":{"rendered":"Aggregate Supply"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Aggregate Output, Prices, and Economic Growth (2025 Level I CFA\u00ae Exam \u2013 Economics \u2013 Module 3)\",\n  \"description\": \"This video lesson covers key macroeconomic concepts, including GDP calculation through expenditure and income approaches, and compares nominal and real GDP. It explores the aggregate demand and supply curves, macroeconomic equilibria, economic growth sources, and the production function approach. The lesson also analyzes the effects of aggregate supply and demand on the economy.\",\n  \"uploadDate\": \"2022-03-18T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/XDs9kjMPKTo\/hqdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=XDs9kjMPKTo\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/XDs9kjMPKTo\",\n  \"duration\": \"PT1H00M32S\"\n}\n<\/script>\n\n\n\n<p>[vsw id=&#8221;XDs9kjMPKTo&#8221; source=&#8221;youtube&#8221; width=&#8221;611&#8243; height=&#8221;344&#8243; autoplay=&#8221;no&#8221;]<\/p>\n<p>Aggregate supply refers to the total amount of goods and services that firms in an economy are both willing and able to sell at a given price level.<\/p>\n<p>We must differentiate between the short- and long-run aggregate supply curves.<\/p>\n<h2><strong>The Long-run <\/strong><strong>Aggregate Supply (LRAS)<\/strong><\/h2>\n<p>The long run is the conceptual time period, that long enough to allow wages, prices, and expectations to adjust but not long enough for physical capital to be a variable input. Firms change the supply levels in response to expected economic profits and losses.<\/p>\n<p>Also, capital, labor, and technology contribute to factors that affect the aggregate supply curve because everything in the economy is assumed to be used optimally.<\/p>\n<p>The long-run aggregate supply (LRAS) curve is static. Therefore, it is perfectly vertical, reflecting economists\u2019 belief that the changes in aggregate demand result in a temporary difference in an economy\u2019s output. As a result, in the long run, only one quantity is to be supplied.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-10171\" src=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g.png\" alt=\"the-long-run-aggregate-supply-lras\" width=\"974\" height=\"810\" srcset=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g.png 974w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g-300x249.png 300w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g-768x639.png 768w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g-400x333.png 400w\" sizes=\"auto, (max-width: 974px) 100vw, 974px\" \/><\/p>\n<h2><strong>The Short-run Aggregate Supply (SRAS)<\/strong><\/h2>\n<p>In the short run, rising prices imply higher profits that justify the expansion of output. In the graph below, a rise in price from \\(P_1\\) to \\(P_2\\) shifts the short-run aggregate supply (SRAS) to the left. The nominal wage rate varies with economic conditions compared to the long run. Put another way, high unemployment leads to a fall in nominal wages, and an increase in employment leads to a rise in nominal wages.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-10172\" src=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g.png\" alt=\"the-short-run-aggregate-supply-sras\" width=\"974\" height=\"856\" srcset=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g.png 974w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g-300x264.png 300w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g-768x675.png 768w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g-400x352.png 400w\" sizes=\"auto, (max-width: 974px) 100vw, 974px\" \/><\/p>\n<p>In the short-run aggregate supply, firms are encouraged to employ more workers. The workers end up being paid slightly higher wages due to the demand and prices of goods and services. This can be seen in booming industries such as the technology industry in Silicon Valley. An increase in wages and raw materials makes the SRAS shift to the left. The inverse is also true.<\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which of the following statements is the <em>least<\/em> accurate regarding the long-run aggregate supply?<\/p>\n<p>A. The long-run aggregate supply curve is static.<\/p>\n<p>B. In the long run, only one quantity is to be supplied.<\/p>\n<p>C. The long-run aggregate supply curve is perfectly horizontal.<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>C<\/strong>.<\/p>\n<p>T<span style=\"font-size: revert; color: initial;\">he long-run aggregate supply curve is perfectly vertical, reflecting economists\u2019 belief that the changes in aggregate de mand result in a temporary difference in an economy\u2019s output.<\/span><strong style=\"font-size: revert; color: initial;\">\u00a0<\/strong><\/p>\n<p><strong style=\"font-size: revert; color: initial;\">A and B are incorrect.<\/strong><span style=\"font-size: revert; color: initial;\"> They are true statements regarding the long-run aggregate supply curve.<\/span><\/p><\/blockquote>\n<div class=\"notes_inv\"><\/div>","protected":false},"excerpt":{"rendered":"<p>[vsw id=&#8221;XDs9kjMPKTo&#8221; source=&#8221;youtube&#8221; width=&#8221;611&#8243; height=&#8221;344&#8243; autoplay=&#8221;no&#8221;] Aggregate supply refers to the total amount of goods and services that firms in an economy are both willing and able to sell at a given price level. We must differentiate between the short-&#8230;<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"class_list":["post-31942","post","type-post","status-publish","format-standard","hentry","category-economics","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Aggregate Supply Explained | CFA\u00ae Exam Study Notes<\/title>\n<meta name=\"description\" content=\"Learn about aggregate supply, the total amount of goods and services firms are willing and able to sell at a given price level. 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