Aggregate supply

Another of the concepts introduced by John Maynard Keynes that still today are used in macroeconomic theories about the determination of the overall level of employment and national income. Like his concept of aggregate demand, the basic notion of aggregate supply was created by analogy to a microeconomic concept originally applying only to an analysis of the market for a single product — in this case, the concept of a supply schedule. Thus, Keynes reasoned, just as the microeconomic theorist can fruitfully analyze the relationship between the various quantities of a particular good or service that will be produced and offered for sale by firms at various prices on a single market by means of a supply schedule or supply curve, the macroeconomic theorist can make similarly good use of an aggregate supply schedule or aggregate supply curve to depict the relationship between the various possible grand totals of all goods and services produced and offered for sale in the national economy (as measured by their total monetary value in the form of a national product estimate like GNP or GDP) and the general price level (as measured by some sort of comprehensive price index rather like those whose yearly rates of change are commonly used to measure inflation).