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Lecture

Chap 26.pdf

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Department
Economics
Course
ECON 102
Professor
Maryann Vaughan
Semester
Winter

Description
Recap: Chap 26 Aggregate Supply - The relationship between the quantity of real GDP supplied and the price level Long-run Aggregate Supply The relationship between quantity supplied and the price level when real GDP = potential GDP Does not depend on the price level ⊖P (⊖money wage rate by the same percentage) quantity supplied is unchanged Short-run Aggregate Supply The relationship between quality supplied and the price level when the money wage, other resource prices, and potential GDP are constant ⊖P ( money wage rate unchanged) ⊖ quantity supplied (along the Aggregate Supply curve) ⊗P ⊗quantity supplied Real GDP may be greater tan or less than potential GDP Shifting the Aggregate Supply curve A change in potential GDP shifts both the LAS and SAS curves An increase in the full-employment quantity of labor An increase in the quantity of capital Physical capital Human capital An advance in technology A change in the money wage rate shirts the SAS curves only If money wage rate ‐ => firm’s cost ‐ => Supply ‑ => left shift of SAS >< What makes the money wage rate change? Departures from full employment Unemployment > natural rate put downward pressure on MWR Unemployment < natural rate put upward pressure on MWR Expectations about inflation An expected ‐ in the inflation => MWR ‐‐ faster An expected ‑ in the inflation => MWR ‐‐ slower Aggregate Demand - the relationship between the quantity of real GDP demanded and the price level The quantity of real GDP demand (Y) is Y = C + I + G + ( X-M) depend on 1. The price level 2. Expectation (income, inflation, profit) 3. Fisca
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