Aggregate Supply: 

Aggregate supply refers to the sum of goods and services that are produced within a domestic economy. In other words, Aggregate Supply (AS) measures the volume of goods and services produced within the economy at a given overall price level. There is a positive relationship between AS and the general price level, hence the short run AS curve slopes upwards. Aggregate supply is determined by the supply side performance of the economy. It reflects the productive capacity of the economy and the costs of production in each sector. The short-run aggregate supply curve is determined by the supply side performance of the economy. It reflects the productive capacity of the economy and the costs of production in each sector. The long run aggregate supply (LRAS) is determined by the productive resources available to meet demand and by the productivity of factor inputs (labor, land and capital). In the short run, producers respond to higher demand (and prices) by bringing more inputs into the production process and increasing the utilization of their existing inputs. Supply does respond to change in price in the short run. In the long run supply is assumed to be independent of the price level (money is neutral) - the productive potential of an economy (measured by LRAS) is driven by improvements in productivity and by an expansion of the available factor inputs (more firms, a bigger capital stock, an expanding active labor force etc). As a result we draw the long run aggregate supply curve as vertical.

Understanding aggregate supply helps to ascertain the true status of macroeconomic value within a country. A shift in the Aggregate Supply curve can be caused by the factors such as changes in size and quality of the labor force available for production, changes in size and quality of capital stock through investment, technological progress and the impact of innovation, changes in factor productivity of both labor and capital, changes in unit wage costs (wage costs per unit of output), changes in producer taxes and subsidies, changes in inflation expectations - a rise in inflation expectations is likely to boost wage levels and cause AS to shift inwards.