<p>Aggregate supply is typically modelled as</p>

<p>$$ Y = F(A, K, L) $$</p>

<p>where</p>

<p>$Y$ = total production</p>

<p>$L$ = labour input</p>

<p>$K$ = capital input</p>

<p>$A$ = total factor productivity</p>

<p>Investment in infrastructure can increase both capital input $K$ and total factor productivity $A$. In a standard $AS - AD$ model, the aggregate supply curve would shift to the right, as a result, and the equilibrium output of the economy would increase.</p>

<p><a href="https://i.sstatic.net/qC9BC.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/qC9BC.jpg" alt="enter image description here"></a></p>

<p>Investment in infrastructure can increase <strong>capital input</strong>, because if there are more roads in the country, the economy can produce more goods and services (think about a truck company, for example, which can do more jobs per day if its trucks travel on more direct roads or faster highways). </p>

<p>It can also increase <strong>total factor productivity</strong>, because the proportional increase in output is potentially higher than the proportional increase in capital input. If with a short road I link a town to a national highway network, the benefits can be disproportionally high, as a short road link now provides access to a huge existing highway network. Or think about the 50 mile Panama Canal. It provides ships an 8,000 mile shortcut.</p>

CC BY-SA 3.0
2017-08-28T08:44:58.910Z
2017-08-28T09:15:01.770Z
2017-08-28T09:15:01.770Z
M3RS
<p>I was just wondering how Infrastructure can impact on Aggregate Supply. More specifically, how does the improvement of infrastructure improve Aggregate Supply?</p>

<macroeconomics>
How does Infrastructure impact on Aggregate Supply?
Chuck
# How does Infrastructure impact on Aggregate Supply?

(Asked by: username_0 on 2017-08-28)

I was just wondering how Infrastructure can impact on Aggregate Supply. More specifically, how does the improvement of infrastructure improve Aggregate Supply?

**Tags:** macroeconomics


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## 1 answers

### Answer by username_1 on 2017-08-28. Score: 5

Aggregate supply is typically modelled as

$$ Y = F(A, K, L) $$

where

$Y$ = total production

$L$ = labour input

$K$ = capital input

$A$ = total factor productivity

Investment in infrastructure can increase both capital input $K$ and total factor productivity $A$. In a standard $AS - AD$ model, the aggregate supply curve would shift to the right, as a result, and the equilibrium output of the economy would increase.

[![enter image description here](https://i.sstatic.net/qC9BC.jpg)](https://i.sstatic.net/qC9BC.jpg)

Investment in infrastructure can increase **capital input**, because if there are more roads in the country, the economy can produce more goods and services (think about a truck company, for example, which can do more jobs per day if its trucks travel on more direct roads or faster highways).

It can also increase **total factor productivity**, because the proportional increase in output is potentially higher than the proportional increase in capital input. If with a short road I link a town to a national highway network, the benefits can be disproportionally high, as a short road link now provides access to a huge existing highway network. Or think about the 50 mile Panama Canal. It provides ships an 8,000 mile shortcut.


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