Depending on the state of the economy, any attempt to change the output of the economy will move us along a given AS curve. There are factors that influence aggregate supply, illustratable by shifting the AS curve—these factors are referred to as determinants of AS. When these other factors change, they cause a shift in the entire AS curve and are sometimes called aggregate supply shifters. These aggregate supply shifters include Changes in Resource Prices, Changes in Resource Productivity, Business Taxes and Subsidies, and Government Regulations. Let’s consider each in turn.
Government regulations also influence the costs of production. Increasing government regulations makes it more expensive to produce the nation’s output and shifts the AS curve to the left; reducing government regulations lessens the burden of business and shifts the AS curve to the right.
Government regulations also influence …
Figure 1 outlines such a model, where security concerns influence land use, travel behavior, public investment priorities, and transportation system performance.
The Avalon Project : Federalist No 68
As discussed in the previous lesson, the aggregate expenditures model is a useful tool in determining the equilibrium level of output in the economy. It does have a significant flaw, however: the aggregate expenditures model does not take into account the impact of the price level on aggregate output. The Aggregate Demand Curve (AD) represents, in that sense, an even more appropriate model of aggregate output, because it shows the various amounts of goods and services which domestic consumers (C), businesses (I), the government (G), and foreign buyers (NX) collectively will desire at each possible price level. Let’s begin by showing the relationship between the aggregate expenditures model and the AD curve.