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Behavior of Short Run Aggregate Supply Curve

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Explain why the Aggregate Supply curve becomes increasingly steeply sloped at levels of RGDP near "full employment" and becomes especially steeply sloped beyond "full employment" RGDP

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The short-run aggregate supply curve depends on the money wages in the economy. Once it crosses the full employment equilibrium the money wage rises very steeply, and hence the SAS rises very steeply.

One way to look at it is this. There ...

Solution Summary

The problem illustrates how the SAS behaves in a typical economy and why does the SAS curve slope so steeply up once it crosses the LAS curve, or the potential output. It explains the behavior of wages and other prices as the economy produces beyond its potential.

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Aggregate demand / aggregate supply

Please help me to solve I am having difficult understanding some of them.

For each of the following state whether you would draw an aggregate demand or aggregate supply diagram and predict what shift each situation would cau.se in the AS or AD curve and why so. Assume full employment at the starting point in each case.

a. The Bank of Canada decreases interest rates.
b. The Canadian government increases spending on new programs.
c. A booming economy in the United States increases Canadian exports.
d. Canadian corporate tax rates are reduced.
e. Canadian personal income tax rates increase to help fund the public debt.

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