MGEA06H3 Lecture Notes - Shortage, Aggregate Supply, Das Model

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olivepig122

25 Feb 2013

School

UTSC

Department

Economics for Management Studies

Course

MGEA06H3

Professor

Iris Au

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Chapter 23: output and prices in the short run. To complete the model, we need to derive the aggregate supply curve. The aggregate supply (as) curve represents the amount of output that firms are willing to produce at each price level. In macroeconomics, the slope of the as curve depends on: It is because we are looking at the entire economy not just one industry, the big picture matters. Case 1: if there is a lot of unemployment (in the short run) This means y* is much lower than yfe. Firms will be willing to supply more even if price does not increase much. Since there are quite a large number of unemployed workers, firms would find it easy to hire workers if they want to expand. The as curve will be relatively flat (ie: elastic). Case 2: if there is not much unemployment (in the short run) Firms will it difficult to increase supply even if price increases.

Related Questions

Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.

In late 2004, oil prices increased sharply while the rate of growth in labor productivity declined. The combination of these two factors should shift the short-run aggregate supply curve up (left). The increase in oil prices, when combined with the slowdown in productivity growth, will likely result in higher costs for firms at each output level. To offset these higher costs, firms increase their prices at each output level, causing the short-run aggregate supply curve to shift up (left).

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Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.

If workers begin to expect more inflation in the future, then we would expect that the short-run aggregate supply curve will shift up. If workers expect more inflation in the future, they will want their wages to increase more rapidly today. This will increase production costs at each production level, causing firms to increase prices at each production level.

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MGEA06H3 Lecture Notes - Shortage, Aggregate Supply, Das Model

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