ECON 295 Lecture 6: Macro Lecture 6

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lemonfox406

23 Mar 2017

School

McGill University

Department

Economics

Course

ECON 295

Professor

Mayssun El- Attar Vilalta

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Document Summary

Macro lecture 6- from the short run to the long run: the adjustment of factor prices. Short run: determine y -> factor prices and technology constant. Adjustment process: y eventually returns to y* -> factor prices adjust and technology remains constant. Long run: changes in y* determines changes in y -> factor prices have adjusted and technology changes. The short run: factor prices are assumed to be constant, technology and factor supplies are assumed to be constant. The adjustment of factor prices: factor prices are flexible, technology and factor supplies are constant. The long run: factor prices have fully adjusted, technology and factor supplies are changing. When y>y*, the demand for labour (and other factor services) is relatively high: an inflationary output gap. During and inflationary output gap there are high profits for firms and unusually large demand for labour.

Related Questions

34. All firms in an industry have the same costs. Assume that all other firms in the industry are in short-run equilibrium. However, at the current level of output of one particular firm, AC-MC>P-MR>AVC. If nothing changes, this firm should: (A) decrease its output. (B) increase its output. (C) keep output constant. (D) shut down in the short run. ((E) decrease output in the short run and shut down in the long run. (F) increase output in the short run and shut down in the long run. (G) adjust output until Total Revenue = Total Cost. (H) produce where the marginal cost curve just cuts the demand curve in the short and long run. (1) none of the above.

Question 4
a. Explain the relationship between the income effect and the added worker effect
b. With reference to output and substitution effects, explain why and how an increase in the wage rate of autoworkers will generate a negative employment response in the long run than in the short run. Assume no changes in prices on non labour input and assume labour productivity remains constant.

tanhyena895

1. If the price level doubles and the real output doesn't change, then nominal output also doubles.
2. Inflation makes it less difficult to interpret the information conveyed by prices.

3. Laissez-faire economists oppose government intervention in the market process.

4. Active demand management policies are based on the work of JohnMaynard Keynes.

5. In the AS/AD model, as the price level rises, the real value of assets increases, causing consumption to increase. This is one reason why the aggregate demand curve slopes down.

6. The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

7. If productivity and wages both raises by 3 percent, then the short-run aggregate supply curve does not shift.

8. The long-run aggregate supply curve is vertical because all prices adjust in the long run.

9. If the economy is not in long-run equilibrium and other things are equal, then prices will eventually adjust to bring the economy to long-run equilibrium.

10. Most economists agree that it is possible for fiscal policy to fine-tune the economy.

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ECON 295 Lecture 6: Macro Lecture 6

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