How does an increase in aggregate supply affect output and inflation?

1 Answer
Jul 3, 2015

output is the total products supplied by the firms of the economy. an increase or decrease in these products will result in price hikes or drops, with constant demand.


If there is an increase in the number of producers within the economy, then the production process will increase, thus the aggregate output.

The general definition of inflation is; the increase of general price over a period of time, usually one(1) year.

If there is an increase in the number producers or an increased supply, then the price of the commodity will drop, because consumers now have a broadened or increased choice, if such a situation is experienced, then the producers will have to have a price competition through the dropping of prices.

the price drops constitute deflation, provided the demand stays the same.