ECO 111 Lecture Notes - Lecture 9: Nominal Rigidity, Aggregate Demand, Root Mean Square
26 Sep 2016
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On average, usa grows @ 3. 5% a year: since 2000 that level has been much lower. Long-run gdp driven by growth theory ( a is the biggest driver, technology) Keynes > built his theories in the 1920s-1930s (most famous economist ever) Long run aggregate supply shifts yearly by about 3. 5% as gdp increases. We think of lras as given or xed when we draw graphs in the short-run. Business cycles are due to changes in planned (autonomous) expenditures. Assumptions: lras is xed in the short-run, sticky prices in short-run. Costs to change prices ( print new menus ) Key: costs can rise some in the short-term without. Rms changing prices (they wait until it makes nical sense to do so: you can hire more labor without increasing wages in the short-run. Key: when demand increases, rms just increase quantity supplied without the production costs increasing. Pae = c + i + g + nx.
