Lec- Week 6

23 Pages
123 Views

Department
Economics for Management Studies
Course Code
MGEA06H3
Professor
Iris Au

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Description
1 ECMA06 The AS-AD Model (continued) The AS-AD Model (continued) Outline The derivation of the aggregate supply (AS) curve. The adjustment mechanism of the AS-AD model. Consider the effect of a disturbance in the AS-AD model and its implications on government policy. Aggregate Demand - Review Recap, what do we learn about the AD? The AD curve indicates the equilibrium level of output on the demand side. The AD curve shows the combinations of Y and P such that Y = AE = C + I + G + X IM. Any factor that affects autonomous expenditure other than Y and P will shift the AD curve. www.notesolution.com2 Derivation of the Aggregate Supply (AS) To complete the model, we need to derive the aggregate supply curve. The aggregate supply (AS) curve represents the amount of output that firms in the economy are willing to produce at each price level. Question: What we learned about marginal cost (MC) in micro suggests that AS should be upward sloping. Does it hold true for the economy as a whole? Answer: Probably not! Once again we are looking at the entire economy not just one industry, the big picture matters! The level of unemployment matters The level of unemployment affects the slope of AS curve. www.notesolution.com
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