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Aggregate supply

Aggregate supply Definition

In economics, aggregate supply is the total supply of goods and services by a national economy during a specific time period. There are at least two different versions of this concept in Keynesian economics.

1. Sometimes the "Z curve" in the "Keynesian cross" diagram is referrred to as "aggregate supply." This curve often represents the total amount of production that corresponds to the total amount of income in a country during a specific time period. Because the sum of all income received corresponds to the sum of all production, this is drawn as a 45 degree line. In this diagram, the desired total spending line crosses this Z curve, determining the equilibrium level of production, income, and spending.

2. In neo-Keynesian theory seen in many textbooks, an "aggregate supply and demand" diagram is drawn that looks like a typical Marshallian supply and demand diagram. The aggregate supply (AS) curve is usually drawn as upward-sloping in the short run, since the quantity of aggregate production supplied (Qs) rises as the average price level (P) rises.

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