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Lecture 33

Lecture 33-Shifts in Aggregate Supply Curve

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University of Toronto St. George
Jack Carr

=/='=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 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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