Beruflich Dokumente
Kultur Dokumente
- Consumption
- Investment
- Government Purchases
- M) - Net Exports
Exports - Imports
supply.
Depress wages and increase SRAS, ceteris paribus
.
Increase economy's potential output, increasing
LRAS.
Government Regulations (Shift Right/Left)
Redution in government regulations on businesses would l
ower the costs
of production and expand potential real output.
SRAS and LRAS shift right.
Increases can make it more costly for producers.
Increase in production costs results in left shi
ft of SRAS, and a
reduction in society's potential output shifts L
RAS left.
Short-run Aggregate Supply (SRAS)
Period when output can change in response to supply and demand,
but input prices have not yet been able to adjust
ex: nominal wages are assumers to adjust slowly in the short run
Why Positively Sloped?
- Higher price levels, producers are willing to supply more real
output.
Reasons
Profit Effect
Ouput prices rise relative to input pric
es (cost),
raising producer's short-run profit marg
ins.
Misperception Effect
If producers see the prise of his output
rising and think
the relative price of his output is risi
ng (i.e. his product
becoming more valuable in real terms), h
e will supply more.
- Lower price levels, producers are willing to supply less real
output.
Shifts
Wages, other input prices, non-labor input prices, changes in ex
pected future price level,
and unexpected supply shocks.
Input Prices (Shift Left) - Bad
Increase in input prices.
Higher price levels.
Price level rise, real output falls below potent
ial output.
iable change in
the economy's productive capacity has occurred,
so LRAS does
not shift.
Short-run Equillibrium Level
- Real output and price level are determined by intersection of AD curv
e and SRAS curve.
- When equillibrium occurs at the potential output level, on the long-r
un aggregate supply curve, the
economy is operating at full employment.
- Only at potential output can short-run equillibrium also be a long-ru
n equillibium.
Change
AD curve shifts or SRAS curve shifts right/left.
Long-run equillibrium level of RGDP only changes when LRAS curve
shifts.
Shocks
Unexpected shifts to supply/demand.
Long-run Aggregate Supply (LRAS)
Period long enough for the prices of outputs and all inputs to
fully adjust to changes in the economy.
- Always positioned at natural rate of output, where all resources are f
ully employed (RGDP nr)
- Firms will always produce at maximum sustainable level allowed by thei
r capital, labor, and
technological inputs, regardless of price levels.
Why Vertical?
Two sets of prices are changing: price of outputs and price of i
nputs.
ex: a 10% increase in the price of goods and services i
s matched by a
10% increase in the price of inputs.
Insensitive to price level, relacting the fact that the level of
RGDP producers are
willing to suppy is not affected by changed in price level.
Long-run Equillibrium Level
- Where the economy will settle when undisturbed, and all resources are
fully employed.
- Economy will always be at the intersection of AS and AD but that will
not always be at the natural
rate of output RGDP nr.
- Will only occur were AS and AD interesct along the long-run aggregate
supply curve at the natural,
or potential, rate of output.
Recessionary Gap
Equillibrium can occur at less than the potential output of the economy.
- When RGDP is less than RGDP nr (full capacity). AD is insufficient t
o fully employ all
of society's resources, so unemployment will be above the normal rate.
Inflationary Gap
Equillibrium can temporarily occur beyond potential output.
- At short-run equillibrium, E sr, at RGDP 3, where AD is so high that
the economy is temporarily
operating beyong full capacaity (RGDP nr).
Inflationary Pressure
Unemployment will be below normal rate.
Equillbrium - Best
Economy is just right where AD 2 and SRAS intersect at RGDP nr - the lon
g-run equillibrium position.
Rare - actual and potential RGDP are equal at RGDP nr or the economy ca
n be at a point where
the potential RGDP and actual RGDP are not equal.
Boom - actual RGDP is greater than potential RGDP.
Recession - actual RGDP is less than potential RGDP.
Economy does not often stray far from potential RGDP.
Recent Exception - financial crisis of 2008.
Demand-Pull Inflation
Price level rises as a result of an increase in AD.
Increase in AD causes increase in the price level and an increas
e in real output.
Causes inflationary gap.
Increase in output occurs as result of increase in price level in the sh
ort-run; firms increase real
output when prices of good they are selling rises faster than costs of i
nputs they use in
production.
Potential output: inflationary gap
Causes (Firms)
Encourage workers to work overtime.
Extend hours of part time workers.
Hire recently retired employees.
Reduce frictional unemployment through more extensive searches f
or employees.
Cost-Push Inflation - Recession
AD did not change significantly but price level did, inflation caused by
supply-side forces, not demand.