Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Aggregate Offer Aggregate supply refers to the amount of goods and services supplied in the market by producers at a certain price level in an economy at a certain time. In aggregate supply, producers determine how much of a good and service to produce based on a given price, production costs, and expected profit. Aggregate supply is affected by several factors, including price levels, wage levels, raw material prices, technology, and government policies. The price level affects aggregate supply because when prices rise, producers have an incentive to increase production. Wage levels and raw material prices also affect aggregate supply because higher production costs can limit the ability of producers to supply more goods and services. Technology can increase production efficiency and enable producers to offer more goods and services at the same price level. Government policies such as taxes and subsidies can also affect aggregate supply by changing the costs of production. To measure aggregate supply, economists use the producer price index (IHP) and the raw material price index (IHBB). PPI measures changes in the price of goods and services sold by producers, while IHBB measures changes in the price of raw materials needed by producers. These indices can assist economists in predicting changes in aggregate supply. In this regard, it is important to understand the factors that influence aggregate supply and how they interact with aggregate demand. The balance between aggregate demand and supply determines the price level and the quantity of goods and services produced in an economy. Fiscal and monetary policies can be used to influence aggregate supply by stimulating or discouraging investment and production by producers. In conclusion, aggregate supply is an important concept in macroeconomics and plays a key role in shaping the economy of a country or region. Understanding the factors affecting aggregate supply enables economists and policy makers to take appropriate actions to increase production and promote economic growth. In addition, in the analysis of aggregate supply, there are three models used to explain the relationship between aggregate supply and price levels. The three models are: 1. Classical aggregate supply model: This model assumes that markets are always in full equilibrium and that the price level is a flexible variable in the long run. In this model, aggregate supply is based on factors of production such as labor and capital. In the long run, production is determined by the factors of production and is not affected by the price level. 2. Keynesian aggregate supply model: This model assumes that markets are not always in equilibrium and that the price level is an inflexible variable in the short run. In this model, aggregate supply is affected by production costs such as wages and raw material prices. In the short term, production may vary based on the level of aggregate demand. 3. Neo-classical aggregate supply model: This model is a blend of the classical and Keynesian models. This model assumes that markets are in long-run equilibrium and that price levels are flexible in the long run, but not in the short run. In this model, aggregate supply is based on production factors and production costs. However, in the short run, the price level is not flexible and production may vary based on the level of aggregate demand. In practice, these three models provide different perspectives in understanding aggregate supply and how to deal with economic fluctuations. Despite these differences, the concept of aggregate supply remains an important part of macroeconomics and helps in understanding the interactions between production, production costs and price levels. In the analysis of aggregate supply, there are also factors that can affect aggregate supply, including: 1. Production Costs: Production costs include raw material costs, labor costs, energy costs, and capital costs. If production costs increase, aggregate supply will decrease because producers must increase prices to maintain their profits. 2. Technology: Technological developments can improve production efficiency and reduce production costs, thereby increasing aggregate supply. 3. Availability of Factors of Production: The level of availability of labor, capital, and natural resources can affect aggregate supply. If the availability of factors of production increases, then aggregate supply will increase. 4. Government Regulations: Government regulations such as taxes and environmental regulations can affect production costs and productivity. Tight regulations can increase production costs and reduce aggregate supply. 5. Changes in Business Climate: Changes in the business cycle such as increases or decreases in investment and consumer demand can affect aggregate supply. If consumer demand increases, producers will increase production to meet this demand. In maintaining economic stability, the government can use fiscal and monetary policies to influence aggregate supply. Fiscal policy can be in the form of reducing taxes or increasing government spending to increase aggregate demand and increase production. Monetary policy, such as reducing interest rates or increasing the money supply, can help stimulate investment and increase aggregate demand.