Explain the influence of each of the following events on the...

Explain the influence of each of the following events on the quantity of real GDP supplied and aggregate supply in India and use a graph to illustrate. U.S. firms move their call handling, IT, and data functions to India. Fuel prices rise. Wal-Mart and Starbucks open in India. Universities in India increase the number of engineering graduates. The money wage rate rises. The price level in India increases.

Key Concepts

Aggregate Supply

Aggregate supply represents the total output of goods and services that producers in an economy are willing and able to supply at various price levels. It is depicted by the aggregate supply curve in macroeconomic graphs and is subject to shifts depending on changes in production factors and economic policies.

Short-Run vs Long-Run Aggregate Supply

The short-run aggregate supply curve is typically upward sloping because wages and other costs are sticky in the short term, while the long-run aggregate supply curve is vertical, reflecting that in the long run, output is determined by factors such as labor, capital, and technology rather than the price level. This distinction helps analyze temporary versus permanent effects of economic events.

Supply Shifters

Supply shifters include factors that alter the productive capacity of an economy independent of the current price level. These factors encompass technological improvements, enhancements in human capital (like an increase in engineering graduates), infrastructure developments, and increases in foreign direct investment which can improve productivity and shift the aggregate supply curve outward.

Input Costs and Cost-Push Effects

Input costs, such as rising fuel prices or increased wages, affect production expenses. When these costs rise, they reduce profit margins for producers, resulting in a leftward shift of the short-run aggregate supply curve—a phenomenon often associated with cost-push inflation.

Price Level Effects and Movements Along the Curve

A change in the price level, without a corresponding change in underlying supply factors, leads to a movement along the aggregate supply curve rather than shifting it. This concept is critical for distinguishing between movements caused by changes in economic fundamentals and those driven solely by price level fluctuations.

Transcript

00:01 Here we are looking at aggregate supply and specifically long run aggregate supply compared to short run aggregate supply so on our graph we have price on the y -axis and then real gdp on our x -axis and we have a few situations and we're going to see how this impacts our graph in terms of long -run and short -run supply so this first one we're looking at the us outsourcing data functions to india so we're going to look at this impact for india and in this case this is going to increase both long -run aggregate supply and short -run aggregate supply.

00:33 So we show this by moving right -word for both.

00:37 So aggregate supply and long run is straight line up and down vertical.

00:42 And then when we have an increase in the short run, it's also going to be shifting to the right.

00:46 So it's going to look like this.

00:49 And this is happening because you're increasing the labor force in india.

00:54 So that's going to be shifting the long run.

00:56 And anything that shifts the long run is also going to have to shift.

00:59 Shift the short run.

01:00 So this next one, we're looking at fuel prices rising.

01:05 So once again, we have our basic graph at equilibrium.

01:08 And when fuel prices rise, we're looking at a decrease in the short run aggregate supply.

01:15 So to show this, we're moving leftward in the short run.

01:19 So a roughly parallel shift to the left.

01:22 This is not shifting the long run because nothing has changed in terms of employment.

01:27 This is just simply prices.

01:29 And we, when the prices rise for fuel, this is going to mean that producers and firms are going to have to have an increased production cost.

01:38 Now next, we're looking at stores such as walmart and starbucks opening up in india.

01:43 So in this case, short run and long run aggregate supplies increasing...

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