In this chapter, we employed the Phillips curve and Okun’s law to develop the aggregate supply curve, by substituting real wages for the nominal wage rate used in the original Phillips curve, and translating unemployment in the Okun’s law into real output by substituting output gap for unemployment gap. Furthermore, we have replaced the adaptive expectation in the original Phillips curve with rational expectationrational expectation to avert systematic errors which carry in their trail autocorrelation problem which plagued early studies because of their reliance on adaptive expectationsadaptive expectation.