In the extended analysis of aggregate supply, the short-run aggregate supply curve is horizontal.
What is the aggregate supply curve over the short term?
- We can understand how each firm in an economy reacts to price stickiness using the short-run aggregate supply curve (SRAS).
- The SRAS curve will have an upward slope when prices are stable. According to the SRAS curve, more output results from higher price levels.
Why is the short-term aggregate supply curve horizontal?
- This is so because it takes time to implement capital, which includes assets like buildings and machinery.
- Additionally, increases in labor only affect quantity rather than price because it is believed that wages will remain static in the short term. Because of this, the SRAS curve is currently practically horizontal.
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