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Lecture 33

Lecture 33-Shifts in Aggregate Supply Curve

4 Pages
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Department
Economics
Course Code
ECO102H1
Professor
Jack Carr

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=/='=y[- M
Y0[
Desired
Spending
45°
Real income (Y)
Y0
C + I + G + X - M
10
Tuesday, February 23rd, 2010.
Shifts in Aggregate Supply
Remember
1. 65$6UHODWLRQEHWZHHQUHDO*'3ILUP¶VGHVLUHGSURGXFWLRQ´DQGSULFHOHYHOwhen
prices of factors of production (including wages) are constant
2. AD: relation between desired spending and price level
Change in Macroeconomic Equilibrium
1. 6KLIWLQ$'³GHPDQGVKRFN´
Increase in autonomous expenditure shifts AD to right.
Price level 9UHDO*'39
Example: Exports (X) increase by $10 billion
Step One: Price Level is Fixed
Y0¶± Y0 = multiplier * change in autonomous expenditure
= 2 * 10 = 20 (if multiplier = 2)
Step Two: Price Level can Vary
=/='=y[- M
Y0[
Desired
Spending
45°
Real income (Y)
Y0
C + I + G + X - M
10
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Description
=/='=y[- M Y0[ Desired Spending 45° Real income (Y) Y0 C + I + G + X - M 10 Tuesday, February 23rd, 2010. Shifts in Aggregate Supply Remember 1. 65$6UHODWLRQEHWZHHQUHDO*'3ILUP¶VGHVLUHGSURGXFWLRQ´DQGSULFHOHYHOwhen prices of factors of production (including wages) are constant 2. AD: relation between desired spending and price level Change in Macroeconomic Equilibrium 1. 6KLIWLQ$'³GHPDQGVKRFN´ Increase in autonomous expenditure shifts AD to right. Price level 9UHDO*'39 Example: Exports (X) increase by $10 billion Step One: Price Level is Fixed Y0¶± Y0 = multiplier * change in autonomous expenditure = 2 * 10 = 20 (if multiplier = 2) Step Two: Price Level can Vary =/='=y[- M Y0[ Desired Spending 45° Real income (Y) Y0 C + I + G + X - M 10 www.notesolution.com AD shifts to right by amount predicted by multiplier Impact of Increase in Autonomous Expenditure 1. Initial equilibrium: Y = Y0 and P = P0 2. Increase in autonomous expenditure (say, increase in exports) $'VKLIWVULJKWWR$'¶ Y0 increases to Y1 and P0 increases to P1 2. ShLIWLQ65$6³VXSSO\VKRFN´ Shift to right in SRAS causes P 9DQG
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