Why is the 45 degree line not a real AS curve???
Is it because it indicates the set of all points where AD = AS rather than indicating the change in AS with change in Income levels in the economy????
Dear student,
The aggregate supply curve is represented by the 45 degree line. Throughout this line the planned expenditure is equal to the planned output. The implication of this is that in case of any disequilibrium AS will adjust in a way to equate the AD in order to restore the equilibrium back. In other words, in case of any inequality between AD and AS, equilibrium output will be determined by AD.
The aggregate supply curve is represented by the 45 degree line. Throughout this line the planned expenditure is equal to the planned output. The implication of this is that in case of any disequilibrium AS will adjust in a way to equate the AD in order to restore the equilibrium back. In other words, in case of any inequality between AD and AS, equilibrium output will be determined by AD.