How to understand the total supply curve of classical macroeconomics?

The total supply curve is divided into three parts. The first part is the horizontal straight line, that is, the horizontal region, which is called the Keynesian region. At this time, a large number of social resources are idle and the production capacity is underutilized. When the output increases, the cost remains unchanged and the price remains unchanged. This is the key field of Keynes's "effective demand" theory research, and there is no need to consider the limitation of total supply on output.

The second part is the vertical line, which is called the classic area. At this time, the whole social resources have been fully utilized and marked as Y, reaching the state of full employment. In this case, no matter how high the price level is, the output in the economy will not increase. The classical school thinks that the price can freely and flexibly adjust the allocation of resources and the economy can always be in a state of full employment, so the total supply curve in the form of vertical line is called classical region.

The third part between them is called the middle!

That is to say, the upper right inclined area, with economic resources, the annual card is as low as 2.4 fold, which is close to full utilization. The increase of output level will lead to the increase of production cost and price level, and the output and price will change in the same direction.

When the labor market is balanced, the balanced employment level is determined, and the corresponding short-term output level can be determined according to the production function.

First, the total supply and demand model of the classical school

Because the total supply curve of the classical school is a vertical line, its total supply and demand model is also quite simple. AS shown in figure 8. 17, the as curve is a vertical line starting from the level of full employment and output. When the total demand level is AD, the output level remains unchanged at Y, and the price level is P, reflecting that the price level at this time mainly depends on the level of total demand, and the change of total demand has only price effect, but no output effect. When the total demand level is raised to AD, the output level remains unchanged, but when the price level is raised to P, part of the total demand level is integrated into the price level. At the equilibrium point, it means that the three markets are simultaneously balanced, that is, the product market, the money market and the labor market are simultaneously balanced. This is because aggregate demand curve comes from the IS- LM model in which the product market and the money market are simultaneously balanced, and any point on the AD curve can satisfy the simultaneous equilibrium of the product market and the money market. The total supply curve comes from the equilibrium of the labor market, and any point on the AS curve can also meet the equilibrium conditions of the labor market, so that all markets can reach an equilibrium state at the equilibrium point.