When it is about supplied real GDP with respect to its quantity (also stated as quantity of real GDP supplied), it is the total services and goods quantity whose value depends on the amount of base year. In this specific period, a company plans to produce an outcome in dollars. There are 4 factors on which this quantity is dependent. They are:

  • Quantity of labor which is employed
  • Quantity of State of Technology
  • Quantity of Human Capital
  • Quantity of physical capital

Now, whatever be the period, you will find 2 criteria to be fixed. They are:

  • Quantity of Human Capital
  • Quantity of physical capital

This fixed aspect is because of the decisions which were taken in the past. Aside to both these factors another one,too, has a fixed value – population. The quantity that is not fixed is labor. It is dependent on the arbitrations made by companies and households who require their service as per their need.

On close consideration, we will find that this labor market is again dependent on 3 criteria. They are:

  • Above the full or complete employment
  • Full or complete employment
  • Below the full or complete employment

In case of full or complete employment, the supply of real GDP quantity is from potential GDP. This aspect is dependent on labor quantity basing on full or complete employment. There is fluctuation in case of employment in business cycle. The period where these effects are visible is aroundfull or complete employment. In addition to this, we can alsosee that around potential GDP, there is a noticeable effect in supplied real GDP in case of quantity of it.

Through all these points discussed above, we can understandthe exact relationship between price level and quantity related to supplied real GDP. This in combination is known as aggregate supply. When compared toshort run and long run, we can see the difference in their relationship. Thisis easily seen with the help of 2 time frames.

  • Short run aggregate supply
  • Long run aggregate supply

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