EC140 Lecture Notes - Lecture 10: Potential Output, Output Gap, Phillips Curve
25 views4 pages
meghan78 and 39778 others unlocked
21
EC140 Full Course Notes
Verified Note
21 documents
Document Summary
Chapter 24 from the short run to the long run. The ad/as model in the short-run: factor prices are exogenous, technology and factor supplies are assumed constant, potential gdp, y*, is constant, real gdp determined by intersection of supply and demand. The adjustment process: factor prices are endogenous or flexible, technology and factor supplies are assumed constant, potential gdp, y*, is constant, real gdp shifts towards y* Long-run growth: factor prices have adjusted, technology and factor supplies are changing, potential gdp, y*, is growing, real gdp determined by y* Potential gdp: total output if all productive resources were fully employed independent of price level. Asymmetric adjustment: inflationary gaps bring quick wage responses, recessionary gaps bring very slow wage adjustment, implies recovery from recession is much slower than we might think. Phillips curve and wage adjustment: start at point a, positive shock to aggregate demand move to b, adjustment takes economy to c.
Get access
Grade+
$40 USD/m
Billed monthly
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers
Related Questions
a) | In the AD-AS model, stagflation does not persist, because the working of the self-correcting mechanism of the economy _____ the level of output and _____ the price level until the economy eventually returns to a long-run equilibrium state, where actual output _____ potential output.
|
b) | The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that
|
c) | Stagflation arises in the context of the AD-AS model when some external factor causes
|
d) | If the SRAS curve is positively sloped, then a decrease in the demand for Canadian-made goods in Europe will lead to _____ in the price level, in the short run.
|
e) | Which of the following will shift the aggregate demand curve to the right?
|
f) | Suppose a stock market crash decreases the stock of household wealth and therefore causes autonomous consumption to fall. Which of the following is the likely result?
|
g) | An economy is characterized by the AD equation P = 200 ? 0.02Y, SRAS equation P = 100 and LRAS equation Y* = 5000. In the absence of any change in policy or exogenous shocks, this economy will achieve a long-run price level of
|
h) | The AD-AS model depicts a self-correcting economy. This means that the price level in the model adjusts automatically in response to a(n) _____ gap, so as to eliminate the _____ gap in the long run, without requiring any help from government policies.
|
i) | The aggregate demand curve shows
|
j) | Consider an economy initially at long-run equilibrium with output (Y) equal to potential output (Y*). If the SRAS is positively sloped, then a shift to the right of the AD curve will lead to _____ in the price level, in the short run. In the long run, the SRAS curve will shift to the _____ and the equilibrium will be at __________.
|