Macroeconomics/Aggregate Supply

Introduction
Aggregate supply (AS) curve shows the relationship between $$P$$ of the economy and $$Y$$ supplied of the economy. SRAS is the AS curve in SR, and LRAS is the AS curve in LR.

The following proposition states the shape of SRAS and LRAS curves.

We can see from above that LRAS curve is vertically located at $$Y^p$$, and $$Y$$ supplied is not affected by $$\Delta P$$.

Illustration of plotted SRAS and LRAS curves: P
 * SRAS LRAS
 * Y
 * Y
 * Y
 * Y

Movements of SRAS curve
A change in $$P$$ not caused by factors that would otherwise affect SRAS results in movement a stationary SRAS curve. However, some factors SRAS curve.

Illustration of $$\nearrow$$ movement SRAS curve:

P (GDP deflator, 2022=100) |    / SRAS 110 |*         |   /|    100 |--* |       | /| |       | Y (trillion 2022 USD) 20 25

Illustration of $$\searrow$$ of SRAS curve from $$SRAS_0$$ to $$SRAS_1$$:

P (GDP deflator, 2022=100) | SRAS_0 |    /  / SRAS_1 |   /  /   100 |---/--/      |  /| /|     | / |/ |     | Y (trillion 2022 USD) 20 25

Movements of LRAS curve
Since $$Y=Y^p$$ for each $$P$$, changing $$P$$ does not have any effect on LRAS curve. Therefore, arbitrary $$\Delta P$$ would only cause movement a stationary LRAS curve ($$\Delta P$$ may be caused by various reasons). However, some factors LRAS curve by changing $$Y^p$$.

Illustration of $$\uparrow$$ movement LRAS curve: P (GDP deflator, 2022=100) |    | LRAS 110 |-*   |     | 100 |-*    |     |    |-- Y (trillion 2022 USD) 30

Illustration of $$\rightarrow$$ of LRAS curve from $$LRAS_0$$ to $$LRAS_1$$: P (GDP deflator, 2022=100) |  LRAS_0  LRAS_1 |     |    |    |      |    | 100 |--||     |      |    |    |- Y (trillion 2022 USD) 30   35

Functions of aggregate supply (optional)
There are different functions of short run aggregate supply based on different models. We will give one example in the following. In the short run, a function which describes the aggregate supply which is known as Lucas aggregate supply function is


 * $$Y=f(P-P^e)=Y^p+\alpha(P-P^e)$$

in which coefficient $$\alpha$$ is a positive real number. This is a function of $$P-P^e$$ which is known as 'price surprise'.

In the long run, the level of real GDP simply equals its natural level, i.e.


 * $$Y=Y^p,$$

and therefore LRAS curve is vertical.