ECO 1102 Lecture Notes - Lecture 14: Opportunity Cost, Oil Reserves, Aggregate Demand

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Chapter 14: aggregate demand & aggregate supply (part 2) 3 theories for upward slope of short-run a. s curve. In each theory, a specific market imperfection causes supply side of economy to behave differently in the short run than it does in the long run: sticky wage theory. According to this theory, short-run aggregate-supply curve is upward sloping b/c nominal wages are based on expected prices & do not respond immediately when actual price level turns out to be different from what was expected. Ex. imagine that a year ago, a firm expected the price level to be 100 &, based on this expectation, it signed a contract w/ its workers agreeing to pay them per hour. In reality, price level turns out to be only 95. As a result of fall in prices, firm gets 5% less than expected for each unit of its product that it sells.

Related Questions

Explain whether each of the following statements is true or false, justifying your response.

The short-run aggregate supply (SAS) curve slopes upward because households spend more as their incomes increase.

The long-run aggregate supply curve can never shift.

Either a decrease in the nominal money supply by the Federal Reserve, all else held constant, or an increase in the price level, all else held constant, will shift the aggregate demand (AD) curve to the left.

The Keynesian portion of the short-run aggregate supply (SAS) curve would be relevant during a recessionary situation.

Stagflation occurs when the aggregate demand (AD) curve shifts out on the upward sloping portion of the short-run aggregate supply (SAS) curve.

skywalrus152

Evaluate whether each of the following statements is true or false, and explain your answer:

a. The short-run aggregate supply (SAS) curve slopes upward because households spend more as their incomes increase.

b. The long-run aggregate supply curve can never shift.

c. either a decrease in the nominal money supply by the federal reserve, all else held constant or an increase in the price level, all else held constant, will shift the aggregate demand curve to the left.

d. the Keynesian portion of the short-run aggregate supply (SAS) curve would be relevant during a recessionary situation.

e. Stagflation occurs when the aggregate demand (AD) curve shifts out on the upward sloping portion of the short-run aggregate supply (SAS) curve.

olivedinosaur161

The sticky-price theory implies that

A. the short-run aggregate supply curve is upward-sloping.

B. an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce.

C. menu costs influence the speed of adjustment of prices.

D. All of the above are correct.

ivoryllama613

ECO 1102 Lecture Notes - Lecture 14: Opportunity Cost, Oil Reserves, Aggregate Demand

ECO 1102 Full Course Notes

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