Aggregate Supply

Loading the player...

What is 'Aggregate Supply'

Aggregate supply is the total supply of goods and services produced within an economy at a given overall price level in a given time period. It is represented by the aggregate-supply curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally, there is a positive relationship between aggregate supply and the price level. Rising prices are usually signals for businesses to expand production to meet a higher level of aggregate demand.

Also known as "total output".

BREAKING DOWN 'Aggregate Supply'

A shift in aggregate supply can be attributed to a number of variables. These include changes in the size and quality of labor, technological innovations, increase in wages, increase in production costs, changes in producer taxes and subsidies, and changes in inflation. In the short run, aggregate supply responds to higher demand (and prices) by bringing more inputs into the production process and increasing utilization of current inputs. In the long run, however, aggregate supply is not affected by the price level and is driven only by improvements in productivity and efficiency.

RELATED TERMS
  1. Supply

    A fundamental economic concept that describes the total amount ...
  2. Aggregate Demand

    The total amount of goods and services demanded in the economy ...
  3. Change In Supply

    A term used in economics to describe when the suppliers of a ...
  4. Quantity Supplied

    A term used in economics to describe the amount of goods or services ...
  5. Supply Shock

    An unexpected event that changes the supply of a product or commodity, ...
  6. Supply Curve

    The supply curve is a graphical representation of the relationship ...
Related Articles
  1. Markets

    Explaining Aggregate Supply

    Aggregate supply is the total supply of goods and services an economy produces in a given time period.
  2. Markets

    Cost-Push Inflation Versus Demand-Pull Inflation

    Gain a deeper understanding of aggregate supply and demand, forces which raise the price of goods and services.
  3. Markets

    What's Aggregate Demand?

    Aggregate demand is a macroeconomic term describing the total demand in an economy for all goods and services at any given price level in a given time period.
  4. Markets

    Economics Basics: Supply and Demand

    Investopedia explains: The Law of Demand, The Law of Supply, Supply and Demand Relationship, Equilibrium, Disequilibrium, and Shifts vs. Movement
  5. Markets

    Cost-Push Inflation Versus Demand-Pull Inflation

    Do you remember how much less you paid for things ten years ago? That’s inflation at work.
  6. Markets

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.
  7. Markets

    Introduction To Supply And Demand

    Find out all about supply and demand and how it relates to your daily purchases.
  8. Markets

    Law of Supply

    The law of supply is one of the most fundamental principles in microeconomics. According to the law of supply, for all other things remaining constant, the higher the price of a good or service, ...
  9. Markets

    Macroeconomics: Supply, Demand and Elasticity

    By Stephen Simpson DemandDemand is driven by utility – the pleasure or satisfaction that a consumer obtains from consuming a good or service. Total utility is a function of the quantities ...
  10. Financial Advisor

    Top Problems with Financial Data Aggregation

    A new front in personal finance technology—data aggregation—seeks to make our financial lives easier. But here's why it may be stalling.
RELATED FAQS
  1. What's the difference between regular supply and demand and aggregate supply and ...

    Understand how businesses use supply and demand and aggregate supply and demand to forecast economic activity. Learn about ... Read Answer >>
  2. What factors cause shifts in aggregate demand?

    Find out how aggregate demand is calculated in macroeconomic models. See what kinds of factors can cause the aggregate demand ... Read Answer >>
  3. How can the federal reserve increase aggregate demand?

    Learn about the Federal Reserve's role in increasing aggregate demand. Fiscal policy tends to be more effective in increasing ... Read Answer >>
  4. How do changes in aggregate demand affect output?

    Find out why aggregate demand and total output are linked in macroeconomic models, and why economists disagree about the ... Read Answer >>
  5. How does aggregate demand affect price level?

    Read about the relationship between aggregate demand and the general price level, and learn why it is difficult to determine ... Read Answer >>
  6. Is demand or supply more important to the economy?

    Learn more about the impact of supply and demand in an economy. Find out why companies study supply and demand as part of ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center