Aggregate supply refers to the money value of final goods and services that all the producers are willing to supply in an economy during a given period of time. I will recommend you to read my post on the Aggregate Demand before going through this. Let’s learn more about it.
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Aggregate supply or national income
We generally refers Aggregate supply as equal to the national income.
AS = Y
This is because, National income only comprises of final goods which are produced in an economy at a particular time period.
Components of AS or Y
The major part of national income is spent on consumption of goods and services and the remaining is saved.
It means that income is either consumed or saved.
AS = C + S
Y = C + S
Diagrammatic presentation of AS
Let’s have a look at the table containing Y, C, S and AS
|Y||C||S||AS = C+S|
Important points on Aggregate Supply
- AS is a straight line, starting from origin, creating an angle of 45 degrees.
- The AS curve and national income coincide with each other.
It refers to the functional relationship between savings and the level of income.
S = -c +sY
S – Saving function
-c – Dissaving
s – Marginal propensity to save or the slope of the saving curve
Y – National income
What is dissaving?
Dissaving means spending money more than the income because of dissaving the saving functions starts from the negative intercept. As shown below:
Important points on Saving Curve
- The saving curve starts from Y’ axis, indicating that there is negative saving when national income is 0. This is also known as dissaving.
- Saving curve has a positive slope indicating direct relationship between income and saving.
- The break-even point is reached, when saving curve crosses x-axis. That is S = 0, when C = Y.
- After the break-even point, savings becomes positive. Similarly, before the break-even point savings was negative.
Thank You for reading.
You can read the related post on macroeconomics:
Precautions while calculating the national income
Domestic territory and national residents
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