What is Aggregate Supply?

Total supply refers to the total amount of products and labor services that a country or region can actually provide to the market through social production activities within a certain period of time (usually one year). Total supply and total social demand are a pair of basic concepts in macroeconomics. Important Concepts of Western Macroeconomics. Generally speaking, the total output provided by a society at a certain period is the sum of various production factors in that period, that is, the sum of the income (wages, interest, rent, and profits) corresponding to the various production factors. ^[1]

It consists of two parts:

First, products and services provided by domestic production activities, including agriculture, forestry, animal husbandry and fishery,

The total amount of products and services that a country's producers are willing to produce and reflect through the market in a certain period of time, based on a certain price level. Relative to the level of aggregate demand, the level of aggregate supply represents the size of a country's total output capacity to meet the level of aggregate demand. Its ex-post indicators are usually measured by the level of gross domestic product (GDP). In a resource-constrained economy, the total supply level is the main factor determining the growth rate of a country's economy; in a demand-constrained economy, the total demand level is the main determinant of the economic growth rate. In the short term, either aggregate supply or aggregate demand may appear excessive. When aggregate supply is too large, negative symptoms such as deflation, increased unemployment and slowing economic growth will occur. Measures need to be taken to stimulate aggregate demand in the short term; when aggregate demand is excessive, negative symptoms such as inflation and a bubble economy will occur In the short term, measures need to be taken to curb aggregate demand. Therefore, the task of macroeconomic management is to coordinate the relationship between aggregate supply and aggregate demand and make it basically balanced.

The total production capacity or full employment output of the national economy. The components of total supply are: consumption, which refers to consumption income in the national income budget; savings, which refers to the portion of national income that is not used for consumption: government revenue, which refers to the sum of various government revenues in a certain period. Use a simple formula to express total supply = consumption + savings + government income. Keynesianism believes that the equilibrium of national income must make aggregate demand equal to aggregate supply. Keynesianism is essentially depression economics. During the depression, social products were in an excess state. The general tendency was insufficient demand, so it was mainly to regulate demand, and the supply side was negative. However, during the period of inflation, the total social demand is strong and the supply is relatively inadequate. At this time, adjusting the total supply has outstanding significance. The supply school in the United States takes regulation of aggregate supply as the main management method.

Concepts used in macroeconomic analysis. Refers to the sum of products and services created by a country's input of production factors (labour, capital goods, and land) in a certain period (such as one year), as opposed to total demand. Total supply can be examined from two aspects: physical form and value form. In terms of physical form, total supply is equal to the total amount of products and services provided by all production sectors in a country within a certain period (such as one year), that is, the total social product. In terms of value patterns, total supply equals the total value of products and labor provided by all production sectors in a country over a certain period of time (such as one year), that is, gross national product. In Western economics, aggregate supply and aggregate demand are equal and are considered conditions for macroeconomic equilibrium. The formula is: Z + Y = C + I + G + X. (Z stands for imports, Y stands for total goods and services, C stands for consumer demand, I stands for investment needs, G stands for government purchases, and X stands for exports) The meaning of the above formula is: the total supply of all products (including domestic Production volume Y and import volume Z), the total supply, must be exactly equal to the total demand of households, enterprises, governments, foreign countries, etc. In Western economics, the equilibrium between aggregate supply and aggregate demand can also be converted into the following formula: total income = total expenditure. Total income is total supply. Total expenditure is total demand. Total expenditure includes consumer expenditure and investment expenditure. Total income includes wage income, interest income, land rent income and profit income. The formula is: C + I = C + S (where C represents consumption, I represents investment, and S represents savings).

The total amount of products and services that a country's producers are willing to produce and reflect through the market in a certain period of time, based on a certain price level. In a resource-constrained economy, the level of aggregate supply is the main determinant of a country's economic growth rate; in a demand-constrained economy, the level of aggregate demand is the main determinant of the economic growth rate.

The output capacity of the national economy's total goods and services in a certain period. Important Concepts of Western Macroeconomics. Generally speaking, the total output provided by a society at a certain period is the sum of various production factors in that period, that is, the sum of the income (wages, interest, rent, and profits) corresponding to the various production factors.

The total supply of products and services that can be used to meet aggregate demand in the economy. Total supply includes domestically produced products and services and imported goods and services. When performing a short-term analysis in the Keynesian macroeconomic model, it is assumed that aggregate supply can adapt to aggregate demand and increase indefinitely.

The total amount of goods and services that enterprises in an economy (or country) are willing to provide depends on factors such as the availability of resources, technology and prices in the economy. Since the total supply is equal to the sum of the supply of various factors of production or the sum of the income from various factors of production, the final destination of the income of various factors of production (wages, rent, interest, and profits) can be used to measure the amount of total supply That is, total supply includes three main items: consumption, savings, and government taxation. By comparing the relationship between aggregate supply and aggregate demand, we can judge the decision and change trend of national income: aggregate supply greater than aggregate demand will cause waste of productive capacity and unemployment, and national income is lower than the potential output level; aggregate supply is smaller than aggregate demand can Promote the upward adjustment of national income, but it will cause prices to rise and even inflation; only when total supply equals total demand can a balanced and stable growth of national income be achieved ^[4] .