ECON 202 Lecture Notes - Lecture 7: Investment Goods, Psychological Resistance, Price Level
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13 Apr 2017
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Relationship between price level and quantity of real gdp supplied, all other determinants held constant. As the price level rises(falls) firms are willing to produce more(less) Unit costs of some inputs are fixed for a period of time. Higher selling prices for output makes production more attractive. Nominal wage rate money wage rate. Higher wage rates cause production costs to increase and profits to fall. Same effect on as as with wage rates. What happened to as in fall 2014: it shifted right as energy prices fell. So improvements in technology shift as curve outward (right) Aggregate quantity demanded(aqd) = aggregate quantity supplied(aqs) Increases in ad push up the price level. Inflationary gap: amount by which equilibrium real gdp > full employment gdp. Recessionary gap: amount by which equilibrium real gdp < full employment gdp. Price level falls and real gdp increases. This process could take a long time. Why nominal wages and prices won"t fall easily.
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