Aggregate supply
Also called: AS · Topic: Aggregate Demand, Income Determination and the Multiplier · NCERT: Class 12, Ch 4 "Determination of Income and Employment"
Meaning
Aggregate supply (AS) is the total output that firms plan to produce in an economy. In the short-run Keynesian model, the price level is fixed and there are idle machines and workers. So firms can supply whatever output is demanded without raising prices, and supply is perfectly elastic. AS is then drawn as the 45° line, where every point has equal values on both axes. Equilibrium income is where aggregate demand cuts this line.
Example
If demand for GDP is ₹1,000, the 45° line shows that ₹1,000 worth of goods is supplied. With C = 40 + 0.8Y and I = 10, AD meets the 45° line at Y = 250.
Don't confuse with
- Aggregate demand: AD is the total planned spending on final goods (C + I, and so on). AS is the total planned output. Output settles where the two are equal.