Chapter 8: Problem 16

What is the difference between a change in the quantity supplied of Real GDP and a change in short-run aggregate supply?

Short Answer

Expert verified

The significant difference between a change in quantity supplied of Real GDP and a change in short-run aggregate supply lies in what triggers the change and its impact on the supply curve. The former is caused by a change in the general price level and results in a movement along the existing supply curve. Conversely, the latter results from changes in factors like technology, governmental regulations or resource availability, and causes the entire supply curve to shift.

Step by step solution

Defining Quantity Supplied of Real GDP

The quantity supplied of Real GDP refers to the total economic output, adjusted for inflation, that producers are willing and able to sell at a given price level within a specific period. It is usually demonstrated by a movement along the short-run aggregate supply curve.

Explaining Changes in Quantity Supplied of Real GDP

A change in the quantity supplied of Real GDP occurs only when there is a change in the general price level. For instance, if the price level rises, businesses can generate more profit by producing and selling more goods and services. Consequently, the quantity supplied of Real GDP increases, depicted as a movement along the aggregate supply curve.

Defining Short-Run Aggregate Supply

Short-Run Aggregate Supply (SRAS) refers to the total quantity of goods and services, adjusted for inflation, that firms in an economy are willing and able to produce over a specific time period given the current price levels, technology, and resource availability.

Explaining Changes in Short-Run Aggregate Supply

In contrast to the quantity supplied of Real GDP, a change in short-run aggregate supply indicates a shift in the entire SRAS curve and not just a movement along the curve. This can occur due to changes in factors other than the price level, such as changes in resource prices, expected inflation, technology changes, or government regulations.

Making the Distinction Clear

In summary, a change in the quantity supplied of Real GDP is a movement along the aggregate supply curve in response to changes in the price level. However, a change in short-run aggregate supply involves a shift in the entire SRAS curve due to changes in factors like technology, resource prices or government policies other than the price level.