ECON 102 Lecture Notes - Lecture 13: Gross Domestic Product, Fixed Capital, Aggregate Supply
Document Summary
Explain the concept of full employment (potential output or optimal output) Explain the keynesian range, the intermediate range and the classical ranges of the as curve. There are two main reasons why quantity (output) might rise as price rises (that is, it explains why the as curve is upward sloping). Aggregate supply is usually inadequate to supply ample opportunity. The as curve is drawn given some nominal variable, such as the nominal wage rate. In the short run, the nominal wage rate is taken as fixed. Thus, rising prices imply higher profits that justify expansion of output. In the neoclassical long run, on the other hand, the nominal wage rate varies with economic conditions. (high unemployment leads to falling nominal wages -- and vice-versa. ) An alternative model starts with the notion that any economy involves a large number of heterogeneous types of inputs, including both fixed capital equipment and labor. Both main types of inputs can be unemployed.
