Posted by
Anjali Kaur
on
Sep 29, 2020
Aggregate Supply
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 |
|---|---|---|---|
| 0 | 40 | -40 | 0 |
| 100 | 120 | -20 | 100 |
| 200 | 200 | 0 | 200 |
| 300 | 280 | 20 | 300 |
| 400 | 360 | 40 | 400 |
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.
Saving Function
It refers to the functional relationship between savings and the level of income.
S = -c +sY
Where,
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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