ECON102 Lecture Notes - Lecture 17: Government Spending, Supply Shock, Demand Shock

• School: University of Alberta
• Department: Economics
• Course: ECON102
• Professor: Andrew Wong

Document Summary

Econ 102 lecture 17 supply shocks and government policy. Essen2ally it describes very high in a9on, high unemployment, and stagnant demand in a country"s economy. Temporary supply shock (graphs from chapter 11. pptx , slide 20) Suppose a temporary supply shock hits the economy. It rst causes the sras to decrease. Thus lowering the output equilibrium below yp. As a result this causes wages to fall (price of labour decreases) Output and prices return to their original level. Permanent supply shock (graphs from chapter 11. pptx , slide 21) Suppose a permanent supply shock hits the economy. Permanent supply shock causes the lras to decrease. Input prices rise causing the sras to decrease. As prices con2nues to rise the sras decreases un2l it reaches the long run equilibrium. Output decreases to new long run equilibrium. In other words we wait un2l the lras and sras have the same magnitude (they always have the same direc2on)